NEW YORK (CNN/MONEY) - Merrill Lynch's downgrade of the semiconductor stocks on Monday and analysts' worries about Intel's second-quarter earnings report scheduled for Tuesday after the close, have pushed down the share prices of many top stocks in the group.

Texas Instruments, one of the stars in the sector, on Monday tested its 10-month low of $22.05 a share, but recovered slightly before the close. All told, the stock has given back more than half its gains since its rebound began in January 2003.

It now appears that the pullback for TI has been too large. Although the stock may still face near-term downward pressure, Texas Instruments looks like a bargain based on its long-term potential.

Stocks such as TI are hard to evaluate because they belong to a special group known as growth cyclicals. These companies go through ups and down according to the state of the economy, just as automakers or any other cyclical sector would.

But if you average out all the ups and downs, the compound annual rate of earnings gains for growth cyclicals is higher than that of the average blue chip.

The bottom line: Growth cyclicals are volatile. But if you hold long enough, earnings growth should enable the stocks to outpace the market, especially if you buy when the share price is relatively low.

Investors are generally bearish on the industry, worrying that semiconductor production is close to a cyclical peak, that inventories are building up and that profit margins are being squeezed by deteriorating pricing.

Analysts will be watching Intel's earnings report to see if inventory and margin trends are worrisome.

Those concerns are legitimate. But look out longer term, and you get a very different picture.

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First of all, the consensus forecast calls for economic growth to pick up in the second half of the year. That would do a lot to banish fears of inventory buildup and eroding profit margins.

Even more important, general semiconductor capital spending and chipmaking equipment spending in particular are projected to grow more than 50 percent this year -- and post a double-digit gain in 2005. This spending doesn't appear likely to turn down until 2006.

Logically, you'd expect sales of actual chips to peak after that. It's just common sense that manufacturers buy capital equipment while their sales are still rising and then use the new machinery to crank out chips for a while before business actually stalls. By that reasoning, chipmakers figure to have at least three more good years -- and maybe four or five.

When you look at Texas Instruments (TXN: Research, Estimates) itself, the timing seems equally favorable. The company receives roughly 85 percent of its sales from semiconductors. Moreover, TI is the leading producer of digital signal processors -- chips used, especially in communications, to turn analog signals into digital ones, and vice versa. An example might be recording music on a CD and then playing the music back.

The great advantage of this business is that TI isn't tied completely to the fortunes of the personal computer business. Instead, TI's chips are used in a variety of consumer electronics devices -- from mobile phones and digital cameras to computer printers and even automobiles.

TI's earnings are expected to more than double this year and grow more than 30 percent in 2005. If those results come through, the $22.34 stock is currently trading at just over 16 times 2005 earnings, or a lower multiple than the S&P 500. And even if a quarter or two of earnings fall below current growth projections, TI's forward P/E should still work out to less than 20.

Earnings growth over the next five years, however, is projected at an impressive 20 percent annually. That certainly makes Texas Instruments a bargain for long-term investors, even if the share prices dips lower during the next couple of months.

Wait a bit if you want, but remember that cyclical growth stocks can change direction suddenly. The way you get a deal on this kind of stock is to step up and buy when other people are selling.

Michael Sivy is an editor-at-large for MONEY magazine. The Sivy on Stocks column and newsletter is available only to MONEY subscribers and AOL members. Subscribe now and you will also receive access to the Sivy 70 -- our exclusive list of America's Best Stocks -- and coming soon, to Sivy's Guide to Growth. Click here to subscribe to MONEY and to sign-up for the Sivy newsletter.