The main thrust of this analysis is concentrated in four parts. The first two parts are based on owner earnings (future and historical) and the third is based on historical price action as a gauge of investor sentiment. The fourth part, which is new to many of you, is my own indicator that pinpoints historical lows in price to owner earnings. In other words if I can get a stock selling for the lowest price to owner earnings in its history, then the odds are in my favor and there is a high probability that I could make some very large gains from such an investment.
The four methods used in this analysis are as follows:
- Price to Owners Earnings (OE) = Future analysis
- Cumulative Owners Earnings (COE) = Historical analysis of owners earnings
- Statistical Indicator Analysis (SIA) = Historical price action
- Mycroft Indicator (MI) = Identifying the lowest price to owner earnings in the company’s history.
Analysis of Intel (INTC)
In the year 2000 Intel (INTC) was trading at a high price of $75.80 and at that point it had an Owner Earnings per share of $1.08. So $75.80 times 6.721 billion shares gave us a market capitalization of $509.45 billion. Today the company trades at $21.82 or -71.21% less than its high of some 11 years ago. The company in 2011 is estimated to have Owner Earnings per share of $1.95 and thus sells for a total market capitalization of $122.12 Billion. Back in 2000 Intel was trading at a price to owner earnings of 70.19 and today trades at a price to owner earnings of 11.18. Therefore the company will generate 55.38% more in owner earnings and sells at -71.21% less than it did 11 years ago. So much for the efficient market theory!
Intel totally dominates its industry and just dwarfs its competitors across the board. Unfortunately like Microsoft (MSFT) it was cursed by the irrational exuberance it went through back in 1998-2001 as the stock was so ridiculously overbought at that time, that it has taken the company 11 years to finally have Main Street catch up with Wall Street. But now the exact opposite has occurred and the stock is so out of favor, (just like Microsoft) that no matter how well it does on Main Street, investor sentiment is just against it. The funny thing is that investors today blame Microsoft and Intel for the madness of investors back in 2000 and all you hear these days is “That’s a terrible stock, because it hasn’t done anything in over a decade.” Thank God the majority of investors think this way as they allowed me the opportunity to buy Microsoft, Intel and Cisco Systems (CSCO) on the cheap.
Here is Intel’s SIA percentage chart to show you what I mean:
As you can see from the chart above that you could have actually bought the worlds #1 manufacturer of integrated circuits on February 23, 2009 at a 44% discount to its SIA. Even with the massive run up that the markets have had in the last two years the stock is still trading at a discount to its SIA.
But maybe Investor Sentiment is so bad because the company is not doing well on Main Street and that is reflected in the stock price? Here is the Cumulative Owner Earnings chart for Intel that begs to differ with that claim:
Well since that’s not the case maybe the CapFlow is terrible?
I guess that’s not it either as the CapFlow is close to the lowest point in the last 40 years.
If you don’t believe me here are Intel’s numbers from 1972-2011 (including 2011 estimates):
How about the Mycroft Indicator? Is the current price to owner earnings near its historic low or did it go much lower at some point?
Well that’s not it either, because even though it’s not at its historic MI low, it is pretty darn close. On a side note if you look at the year 1996 above, you would have bought the stock at its historic low P/OE at $6.20 a share and then sold it at 30 times its P/FCF at $21.30 the following year for a gain of 243%. You would have let others continue to gamble and shoot the stock up to insane levels and then watch it fall from $75 to $13 in just two years.
The most dangerous thing you can do as an investor is follow the crowd and though my system would have gotten you out with only a 243% gain, it would have had you avoid the drop off the cliff that followed. It’s also interesting that the stock was trading in 1996 at a P/OE very close to where it is today.
Finally the only reason remaining as to why Investors are not jumping on board with Intel is because their competition must be more attractively priced from a Mycroft Research point of view?
Well that’s not the case either. We have exhausted every method available in our Mycroft Research arsenal and have come to the conclusion, that any way you look at it, Intel in our opinion is a buy.
Always remember that these are the results of our research based on the methodology that I have outlined above and in other articles previously published. This research is provided as an educational tool and should not be considered investment advice, but just the results of our research. There are many ways to analyze a stock and you should never blindly follow anyone’s work without doing your own due diligence or by seeking the help of an investment advisor, if you so need one. As Registered Investment Advisors, we see it as our responsibility to advise the following: We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong. Please note, investments involve risk and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Strategies mentioned may not be suitable for everyone. We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter “Mycroft” Psaras, and should not be construed as personalized investment advice. Information expressed does not take into account your specific situation or objectives, and is not intended as recommendations appropriate for you. Before acting on any information mentioned, it is recommended to seek advice from a qualified tax or investment adviser to determine whether it is suitable for your specific situation.