Intel (INTC) dropped almost 30% in the last 6 months and it's starting to look attractive again. Why?
The nature of its business makes their results quite volatile, with earnings per share varying between $0.86 in 2006 and $2.39 in 2011. That volatility makes the stock price fluctuate with market expectations and, with them, good investment opportunities appear.
In the last 10 years, and excluding the exceptional period between the end of 2008 and the summer of 2009, the lowest market cap at which Intel traded was at around $90 billion. At current prices the market cap is at around $98 billion.
|Q3 2012||Q2 2012||Q1 2012|
|Net Income (millions)||$2,972||$2,827||$2,738|
|Earnings per share||$0,58||$0,54||$0,53|
|Dividends per share||$0,23||$0,21||$0,21|
|Cash and equivalents (millions)||$10,465||$13,648||$13,753|
|Total assets (millions)||$74,441||$72,352||$71,817|
|Long term debt (millions)||$7,100||$7,093||$7,088|
|Total equity (millions)||$49,269||$48,779||$46,760|
|Shares outstanding (millions)||4,982||5,013||5,006|
If we look at what has been the performance of the company this year, results are pretty decent. In the first 9 months the company has achieved already more than $8,5 billion in net income and regarding the balance sheet, there is more cash than long term debt, with total equity continuing to grow.
The recent weakness in the stock price came after the company announced that this next two quarters would be more challenging given that its customers are waiting for the introduction of Windows 8, and so, still developing their new products (tablets/hybrids/ultrabooks).
That situation is temporary. Consumers have been delaying their purchases because they have been waiting for those new products to come out and, in the meanwhile, it's normal that demand for the traditional PCs has been lower. But that demand is accumulating and will come later.
Even so, the company faces some challenges. The current CEO is retiring and the company will have to catch up in the mobile devices segment (smartphones/tablets) where ARM (ARMH) chips are leading. Given the consumer driven market changes that are taking place, the biggest challenge will be if Intel will manage to have the dominant position in the mobile market that it has in the PCs market. The company has the resources to do it, for example Intel has 21 times the amount of cash that ARM has but, with technology, we never know who comes out winning.
In the last 10 years it was always a good buying opportunity when the company traded below $20 per share (market cap below $100 billion). This time, there is no reason why this shouldn't be a good buying opportunity again for a 20% return (when the company returns to a market cap of around $125 billion) but my advice would be to buy slowly because it's always hard to catch the lows. In the meanwhile, while the company faces its challenges, you will be receiving a quarterly dividend, who is currently yielding more than 4%.