Why Intel Is A Buy

Jan.20.12 | 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 $25.80, the company trades close to 50 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)

$25.80

10.69

Advanced Micro Devices (NASDAQ:AMD)

6.41

4.33

Nvidia (NASDAQ:NVDA)

14.67

13.54

Texas Instruments (NASDAQ:TXN)

33.89

11.19

Qualcom (NASDAQ:QCOM)

57.6

11.72

Broadcom (BRCM)

34

21.35

Click to enlarge

2.The company's fundamentals have been improvin.7g. Q4 net revenues rose to $13.9 billion, ahead of its previous target of $13.7 billion. The company has further boosted its spending in plant and equipment and R&D investments.

3.An upgrade cycle. 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 3.20 percent-among the highest in the high-tech industry.

6. Successful transition from PCs to mobile devices with the introduction of new products like the Atom chip.

Disclosure: I am long INTC.