It's the law of big numbers. The bigger the numbers get, the harder it becomes to move them higher. In time nearly every big company becomes what's called a widows-and-orphans stock, a low-risk investment with solid dividends.
Intel (INTC) is in that category. During its growth heyday of the 1990s the company split many times. I know. I bought 100 shares and sold out 100 with some of those splits, yet I still ended the decade with 600 – more than I'd started with.
Since then, of course, the company has done little for stockholders but pay dividends. Not that there's anything wrong with that. A dependable yield of about 3.74% is a good thing.
The only law more damning to Intel than that of big numbers is, of course, Moore's Law. These basic truths about chip design – that they keep getting better and cheaper, that they keep getting more expensive to get into production – have defined the company practically since its founding. They have also defined the positive changes of the last generation.
Dr. Osman Gulseven estimates Intel's true value at 60% higher than its mid-June price of $21.33 per share. Of course, he's long Intel, and is simply looking at numbers.
A more bearish case can be made on some of its product lines. Its vaunted 3-D chip connectors may be matched by the Taiwanese this Christmas. The niche it really owns, PCs, is fading rather than growing It's still missing the handheld market. Its Itanium chip is being hammered by Oracle's (ORCL) withdrawal of support, an HP (HPQ) suit against that withdrawal, and IBM's cheerful capture of market share in response.
On the other hand Intel's new Solid State Drives (chip-based rather than built on spinning disks) are drawing rave reviews. Its Ultrabook design is fueling a new generation of tiny, cheap-as-chips PCs for new markets. There is the play in Smart TV. Cloud clusters are getting huge, which has to be good for server sales.
But here's the problem. Intel's quarterly sales are nearing $13 billion, and operating margins are flat. The company is managed to stability, with short-term investments adjusted to keep things level. Semiconductors are, on balance, a slow-growth market and Intel doesn't know how to do anything else.
I don't consider that a recommendation, although for now I remain long.