Intel Is A Good Value Buy

Dec. 5.11 | About: Intel Corporation (INTC)

Intel Corporation's (NASDAQ:INTC) stock performance is often criticized for being "flat", but after beating earnings recently, shares are actually up more than 17.5 percent over the last 5 years compared to the Nasdaq index, increasing by a little more than 6.5 percent. The company itself has long term, sustainable earnings unlike most companies in the technology sector and has a 3.4 percent dividend yield, which is pretty high considering how most tech companies don't pay dividends. In this article, I try to make a case saying that Intel is currently a great value buy.

Intel makes semiconductor chips and is most famous for its PC processors. Although it has a competitor in Advanced Micro Devices (NYSE:AMD), the PC processors that Intel makes essentially command the market. Intel's P/E ratio is 10.65, with an EPS of $2.31 and a share price of $24.64 at the close of Friday's trading. Looking forward, Intel is expected to have an EPS of $2.56 in 2012, which would put its forward P/E ratio under 10. I feel like this is a very low EPS for a company like Intel since it has such a strong cash cow with its processors, and its future earnings potential is very certain. Even in a bear market, I believe that Intel should be trading around a P/E of 13, pricing shares at $30.

The main reason why Intel shares were flat from 2007 through 2009 was because of its losses in revenue from 2007 ($38.3 billion) to 2009 ($35.1 billion). In 2011, the company is expected to have revenue of $54.7 billion and 2012 revenue is expected to be $57.4 billion. As more people use personal computers, these higher revenue numbers should solidify.

The final point I would like to make about Intel is its tax rate. The company paid 45 percent income tax in 2008, 30 percent in 2009 and 40 percent in 2010. A major trend in politics right now is advocacy for lower corporate tax rates, so that more companies that do business in the United States base themselves in the U.S. If legislation gets passed to lower corporate taxes, Intel's earnings would strongly increase overnight. For example, if corporate taxes drop from 35 percent to 25 percent, earnings would increase by 15.4 percent. Intel has a lot of upside and now is a good time to make a buy as the stock market remains pretty cheap.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.