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Intel: Consistent Strength

by: Asif Suria October 08, 2008 | about stocks: INTC    

Asif Suria

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It has been well over two years since we featured Intel (INTC) in the July 2006 edition of SINLetter and sold it roughly a year later for $23.23 to book a gain of 22.26%. The stock has dropped significantly since then and is currently off more than 40% from its December 2007 peak. Unless you believe in financial armageddon, troubling times such as these are the perfect time to pick up financially strong companies that are leaders in their sector. Given the financial problems competitor Advanced Micro Devices (AMD) is facing, Intel at this point is not just the leader in its sector but pretty much is the only game in town. Opportunities to pick up virtual monopolies at less than 12 times 2009 earnings, while collecting a 3.2% dividend yield rarely present themselves.

The company currently has nearly $12 billion in cash and short-term investments on its balance sheet as well as $5.29 billion in long-term investments when compared to just $2.83 billion in both short-term and long-term debt. Intel generated nearly $1.6 billion in net income just last quarter and while no one expects jaw dropping growth rates form Intel, expectations of nearly 15% growth are still respectable and may even be aggressive.

As companies like Intel kept packing more and more transistors into chips that kept getting smaller, electricity leakage and heat became a big problem. Intel lost market share to AMD in the server segment primarily because AMD's chips were running cooler and consuming less energy. Intel's answer to this was its new "high-k" material, which in Gordon Moore's own words is "the biggest change in transistor technology since the introduction of polysilicon-gate MOS transistors in the late 1960s." This new material has helped reduce "gate leakage" more than 100-fold and the chips based on this high-k material were picked by Time magazine as one of the best inventions of 2007.

The risks of earnings expectations getting revised downwards and this recession lasting longer than most people originally expected certainly exist but most of those risks already appear to be factored into the stock price. Consider the fact that even during the dot com bear market of 2000-2002 that took a severe toll on most technology stocks, the lowest Intel dropped to was $13.22 in October 2002. Intel had a much stronger competitor in AMD at that time than it does now.

I am going to add Intel to our watchlist and will post an update on the blog if I decided to start a position for the SINLetter model portfolio.

Disclosure: I currently hold Intel in my personal portfolio and am planning on adding to my position.

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This article has 1 comment:

  •  
    Oct 08 10:45 AM
    The problem with buying tech at these "cheap" levels, is that I believe tech will be the last shoe to drop since the market hasn't factored in the global slowdown. Intel most likely has more to drop when they start announcing earnings and future earnings forecasts.
    Reply
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