Intel & AMD: Both Are Long Term Buys

Investopedia Advisor submits: Technology stocks, more specifically semiconductor stocks, are on the ropes, but they won’t stay there forever. In fact, going forward they will be an integral part of technological advancement. Bank on it. Here is my current take on the two biggest chip makers:

Intel (INTC): Analysts figure the company will earn 80 cents per share in 2006 and $1.05 in 2007. That’s a decent growth rate, but that’s not too impressive for a $17 stock. Plus, given the weakness in the PC market and AMD’s efforts to continue to capture market share, I really question the 2007 estimate.

It has roughly $7 billion in cash on its balance sheet, minimal debt, is well financed, and appears to be able to grow without tapping the equity markets. I am also very impressed with their continued ability to roll out new products including Woodcrest, a server-oriented processor that’s getting some good reviews.

AMD (AMD): They go head to head with Intel, and their technology in many instances is as good or better then the 800-pound gorilla in my opinion. The company sports about $5 cash per share on its balance sheet, and has minimal debt, like Intel. It is also expected to grow its earnings from $1.10 a share in 2006 to $1.28 per share in 2007. But like the situation at Intel, I think that 2007 is a bit too rich. I also think that tax loss selling could pull this stock down a bit further in the coming months.

Put simply, I like Intel and AMD. I think the pie is big enough for both players to operate. It’s just that I don’t see any near term catalyst for these stocks. So I am warning against bargain hunting at this point. Again, I think that these stocks should have a great run over the next three to five years. But, I would wait for a more opportune entry point before committing any funds.

INTC 1-year chart:

AMD 1-year chart:

By Glenn Curtis, Contributor - Investopedia Advisor

At the time of release Glenn Curtis did not own any shares in any of the companies mentioned in this article.