Better Buy: Intel Corporation vs. Texas Instruments

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There are a host of similarities between Texas Instruments (NASDAQ: TXN) and Intel (NASDAQ: INTC) despite the fact that each plays in a different tech sandbox. Both pay outstanding dividends, and rely on their ingenuity in developing cutting-edge semiconductors for their respective markets.

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Texas Instruments' dominance in the electronics sector is undeniable, and shareholders continue to enjoy steady, if not spectacular, growth and income. Intel, on the other hand, is in the process of reinventing itself away from a supplier for old-school PCs, becoming a provider of cloud-based data centers and Internet of Things, virtual-reality, and artificial-intelligence solutions. So which is the better buy?

The case for Texas Instruments

Last quarter was another example of the steady growth Texas Instruments shareholders are accustomed to, although the company's 13% increase in revenue year over year, to $3.69 billion, was a pleasant surprise and handily beat expectations. CEO Rich Templeton cited strength in both the automotive and industrial markets as contributing to the strong quarter.

Keeping a good handle on expenses along with its growing top line boosted the company's earnings per share by a whopping 30%, to $1.03. Both of Texas Instruments' core solutions -- analog and embedded processors -- grew by double digits, paving the way for what will almost certainly be continued growth in the quarters ahead.

The bump in Texas Instruments' quarterly dividend, to $0.50 from last year's $0.38 a share, has boosted its yield to a more than adequate 2.45%, which isn't quite as high as Intel's but is still awfully good in today's low-interest environment.

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Another arrow in Texas Instruments' quiver was the 4.5% drop in sales and marketing overhead, which is particularly impressive given its revenue growth for the quarter. The icing on the second quarter was a higher-than-expected revenue forecast for this quarter, of $3.74 billion to $4.06 billion, which even on the low end would beat last year's $3.68 billion.

The case for Intel

Unlike Texas Instruments stock, which has deservedly risen 13% in 2017, Intel shares are down about 3.5% this year despite the company's reporting another record-setting quarter. While Texas Instruments continues to grow its core businesses, Intel's transformation to a "data center first" provider hasn't won over investors.

Intel is trading at about 11.7 times future earnings, about half the industry average. Texas Instruments is valued at 20 times forward earnings. What makes Intel's valuation a head-scratcher is that last quarter's sales figure of $14.8 billion was an all-time high, and the company raised guidance for 2017. The result: Intel's stock is down 1.5% since it shared the "good" news.

Aside from its smallest unit, programmable solutions, each of Intel's four other divisions performed admirably last quarter, including PC sales, which climbed 12% to $8.2 billion. It's becoming clear that despite the bleak outlook, the PC market is not dying.

As impressive as Intel's PC results were, it was the 9% jump in data-center revenue, to $4.4 billion, and 26% increase in Internet of Things sales to $720 million that warrant investors' interest. Toss in a stellar 58% rise in non-volatile memory revenue, to $874 million last quarter, and it becomes harder to explain the market's overall discomfort with Intel.

The envelope, please

For conservative, income-seeking investors, Texas Instruments is a sound alternative by most every measure; it's growing in the areas it excels at, and boasts a growing business pipeline.

Intel's forays into cutting-edge markets haven't caught the interest of the Street, which is why it's a value investor's dream stock; its 3.1% dividend yield should appease shareholders as it continues its transformation. For those reasons, Intel gets the nod over Texas Instruments as the better buy.

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Tim Brugger has no position in any of the stocks mentioned. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.