Why You Should Be Happy That Intel Is At $22 Instead Of $36 And Pray For Lower Prices

| About: Intel Corporation (INTC)

Intel's (NASDAQ:INTC) stock has been taking a beating lately, frustrating investors and reigniting the "Intel is dead or dying" kind of analysis all over the web. Taking a different approach to all this in this article I will demonstrate that Intel's investors should be happy instead of frustrated about Intel's fall back to $22 and I'll explain how to take advantage of this opportunity.

First I will start with the obvious. Intel offers a 4% yield and any sane investor should be more than happy with temporarily stagnant prices because it would allow for reinvesting the dividend at a favorable price. Of course dividend safety an future expansion is key and given that Intel is healthy and thriving cash cow any investor can sleep well on the company's dividend.

The second and main reason investors should be happy about being able to buy Intel's stock at these prices is that Intel is a classic fit of a phrase Mr. Cramer likes to use often. Intel is a "broken stock but not a broken company". The reason I feel confident enough to say this (contrary to many analysts and evidently the market) is that Intel is in the verge of experiencing a big and quick "pop up" in market share and profits.

I'm not an Intel fanboy nor did I make any of this up. It's just a fact. Up until recently ARM's (NASDAQ:ARMH) designs and ecosystem has been the undisputed CPU leader in the tablet and smartphone markets and owned these markets. Despite its win in power-efficient devices there though ARM has been unable to expand its expertise in more performance-based computers and the Windows ecosystem.

Intel on the other hand although it has been very late to the smartphone and tablet markets has managed to pull itself together and not only it defended its markets successfully but has managed to surpass ARM's designs in their own strengths and is about to fully "assault" the tablet market. By the end of this year the first tablets that use Intel's new Bay Trail CPU will be available and they will probably match or surpass ARM based models both on battery life and performance.

However Intel's strengths don't end there. Intel due to its huge manufacturing scale as the biggest chip maker in the world can offer its chips at better prices than the ARM camp while at the same time maintaining its big profit margins. Furthermore, as Intel's CEO states below Intel's products can be used both for Android and Windows devices while ARM processors are worthless for Windows based tablets and PCs.

Brian M. Krzanich - CEO

The question is can x86 go into these ultra-mobile markets and how do the customers view that? And my answer would be they are more than willing to accept it. The fact that x86 works on both Android and Windows is a real advantage to our OEM base. They look at that and say that they can have one architectural design, one set of products and use both operating systems. So it's a unique feature that we are able to provide.

This dual support is the key that will put Intel into every tablet except perhaps those made by Apple (NASDAQ:AAPL). What OEM can refuse buying cheaper and better CPUs that can support both the Android and Windows platform? The scale that this duality creates will enable OEMs to decrease their production costs and enhance the attraction of their products.

I strongly believe that we will see history repeat itself. ARM based processors will fall in demand sooner or later and ARM-based manufacturers will face the same fate with Advanced Micro Devices (NYSE:AMD). And after that happens, Apple will be forced to switch from ARM-designed CPUs to Intel's for the same reasons it stopped building its own CPUs for its Macs.

As for mobile, unfortunately this still remains a major weakness for Intel, because it hasn't managed yet to build its own LTE chip. Intel made an acquisition that may help in the solution of this problem but it still has a lot of way to go. You can read more about Intel's LTE challenge read this excellent article by fellow contributor Ashraf Eassa.

So what should one pay for Intel and what will he get back in value? Analysts predict $1.95 for Intel's 2013 EPS and $2.05 for 2014 with 5% average growth rate over the next 5 years. Although I believe that this is growth projection is way too conservative, it implies that Intel is worth approximately 13 times its 2014 earnings or about $27 per share.

However given its prospects in the tablet market, I expect Intel to grow at a average growth rate more close to low double digits and a 15 P/E multiple is more appropriate for valuing its stock. Thus we can assert that Intel's fair value is between $27(13 P/E) and $31(15 P/E) per share. Now it is selling at an approximate 20% - 30% discount from this fair price. That's why investors should be more than happy to buy Intel while it's in the $20-$22 area.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in INTC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.