Intel (INTC) is one of the strongest stocks in the PC industry. With a dividend yield of 3.5%, Intel is also attractive to defensive investors who seek to protect themselves from inflation. In this article, we are going to take a closer look at Intel and semiconductor-related stocks, including Advanced Micro Devices (AMD), Texas Instruments (TXN), Broadcom (BRCM), and NVIDIA (NVDA) to determine which stocks promise higher returns for investors.
Intel reported revenues of $14.2 billion for the third quarter of 2011. Net income increased by 17% to $3.5 billion. EPS is $0.65 per share, up 25% year-over-year. Intel is expected to earn $2.45 in 2011 and $2.57 in 2012. The stock recently traded at $24.66. Its current PE ratio is 10.68.
Valuation:
Intel’s earnings are expected to grow at 10.09% over the next five years. This implies that its PE ratio, using its 2014 earnings, is around 8.30. AMD’s expected growth rate is 10.3% and its corresponding PE ratio is 7.29. But AMD’s numbers do not reflect the recent turmoil in the company. That’s why the stock is trading at a significant discount. Texas Instruments is expected to grow at 10.07% and its PE ratio, using its 2014 earnings, is around 10.36. Broadcom is expected to grow by 12.38% over the next 5 years and its PE ratio, using its 2014 earnings, is around 12.48. NVIDIA’s expected growth rate is 16.91% and its PE ratio for 2014 is 9.35. With a pretty low PE ratio, Intel looks undervalued compared to other stocks in the group. For comparison's sake, Microsoft (MSFT), Hewlett-Packard (HPQ) and Dell (DELL) are trading at single digit 2012 multiples.
Volatility:
Volatility is generally used as a measure of risk. Intel’s beta is 0.97, AMD’s beta is 2.34, Texas Instruments' beta is 1.03, Broadcom’s beta is 1.04 and NVIDIA’s beta is 1.41. The relatively high beta of AMD shows the recent turmoil in the company and indicates that the stock is a bit risky to invest in. Intel has the least volatility among the group as its beta is the lowest.
Hedge Fund Ownership:
Stocks that are favored by hedge funds tend to outperform the market by a few percentage points on the average. Intel was the most popular stock among hedge funds at the end of second quarter. It was held by 40 hedge funds. Other stocks enjoy similar popularity among hedge funds. Each of them was held by 20-25 hedge funds at the end of the second quarter. Ken Fisher, Jean-Marie Eveillard and Jim Simons all had around $300 million invested in Intel and they all increased their Intel positions during the second quarter. Jean-Marie Eveillard is bullish about both Intel and Texas Instruments.
Insider Purchases:
Stocks purchased by insiders tend to outperform the market on the average. NVIDIA was purchased by one insider over the past six months. Other stocks do not have insider purchases during the same period.
Overall our analysis points out that Intel is undervalued compared to the other stocks in the group. It is also the most stable stock within the group. Strong hedge fund interest in Intel also indicate some form of perceived value. The stock returned 9.48% since the end of June, outperforming SPY by 15 percentage points. We like Intel and we urge investors to do an in-depth analysis of the stock for their portfolios.
Disclosure: I am long MSFT.
