5 Reasons to Buy Intel

Jul. 8.11 | About: Intel Corporation (INTC)

As investors gear up for the profit season, they may want to take a close look at leading companies that have a tradition of beating earnings expectations, with low valuation, improving corporate and industry fundamentals, and a good dividend payout. Intel (INTC) is one of them.

1. A low valuation. At $22.80, the company trades close to 60 percent below its 2000 highs—with forward P/E below the industry average. One of the reasons for this low valuation is the investor belief that Intel’s business has suffered a setback after the March 11th tsunami. This isn’t true, however, as only 10 percent of its revenues come from Japan.

Company

Recent Price

Forward P/E

Intel (NASDAQ:INTC)

$22.80

9.52

Advanced Micro Devices (NASDAQ:AMD)

7

9.33

Nvidia (NASDAQ:NVDA)

15.67

12.54

Texas Instruments (NASDAQ:TXN)

32.89

11.99

Qualcom (NASDAQ:QCOM)

58.6

16.72

Broadcom (BRCM)

34

11.35

Click to enlarge

2. The company’s fundamentals have been improving. Net revenues rose, from $35.1 billion in 2009 to $43.6 billion in 2010, while diluted earnings per share rose from .77 to $2.05. The company has further maintained its lead in plant and equipment and R&D investments.

3. An upgrade cycle and favorable US tax legislation is expected to boost semiconductor sales. According to the Semiconductor Industry Association, global sales of semiconductors totaled $25 billion in May, up 1.8 percent from April, and 1.3 percent from a year earlier. The Association further expects industry sales to grow by 5.4 percent this year, and by 7.6 percent in 2012.

4. Binding entry barriers make the industry an oligopoly that allows Intel as the larger player to enjoy economies of scale, while maintaining pricing power.

5. Intel has been boosting its dividend for the last five years—now standing at 3.40 percent—among the highest in the high-tech industry.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in INTC over the next 72 hours.