Intel Corporation (INTC) has taken a decade to grow to the valuations that Wall Street had assigned to it. While it has been dead money during that time frame, this might be the point when owning Intel pays off. The fundamentals and technicals of this stock have been aligned ever since August 2011, when it showed terrific RSI and promptly started making new 52-week highs. Given the recent market weakness, this might be a good place to own this company.
Intel has a very strong moat. Intel has ~80% market share of global PC CPU market. It takes years and billions of dollars to make a fab. Very few companies have the expertise or resources to compete and take market share away from Intel.
The Data Center Group, which provides technology for cloud computing and high-end servers, is growing quickly. Revenue for the division was $10.1 billion in 2011, up 17% from 2010.
In 2011, Intel spent $8.4 billion on R&D and $10.8 billion on capital expenditures for plants, property and equipment. That's almost double the total spent in 2010. That sizable investment expenditure should produce greater profit for Intel in the future.
Intel is very shareholder-centric through buybacks and dividends.
Intel has a great history with buybacks. Since 2005, it has bought back over $45 billion of stock and as of March 31, 2012, there is still $8.6 billion left.
Intel also has a dividend yield of over 3% and has shown to consistently raise its dividend year over year. Last year it raised its dividend twice by 15% and 16% respectively. This year it raised its dividend again by 7%.
Intel might acquire companies foolishly. In 2010, Intel spent over $7 billion for Mcafee, an internet security provider. The deal valued Mcafee at forward p/e of 19. When purchasing it, Intel argued that Mcafee would improve its mobile market share and thereby the price was justified. The market however, thought the price was too expensive. Intel's stock dropped for an extended period of time and dipped below $20.
Given Intel was willing to pay so much for a tangential company, it might acquire another wireless semiconductor company in the future and pay a very healthy premium.
The global economy is slowing down, especially China. As of 2011, it got 57% of its revenue from the Asia Pacific region. A slow down will in Asia will affect Intel's growth prospects.
The PC to mobile trend is inhibiting Intel's growth. Intel is not strong in mobile/wireless where energy usage is more important than raw horsepower. While Intel does have around 15% market share of the wireless semiconductor market, Qualcomm (QCOM) and Samsung are still the market leaders.
At a price of $25.94,
It has a p/e of 10.99.
Book value is $9.34.
It has a forward p/e of 9.64.
A dividend yield of 3.24%.
It has a dividend 5-year growth rate of 12.74%.
Right now there is a general flight to safety. People want to own companies that will do well regardless to what the economy does. Telecoms, utilities, oil pipelines and safe high-dividend plays are suddenly hot. While Intel does have macro exposure, given its near monopoly and inherent advantages, Intel is generally considered a long-term safe stock. It has a healthy yield to pay investors while they wait.
Generally speaking, investors want to buy quality stocks that are in healthy uptrends but that have pulled back. Intel looks like a stock that fits those conditions.
In a short-term time horizon, waiting for Intel to dip to $25 where there is strong technical support and buying there might be a 'safe' trade.
Longer term, buying now, and holding on to it might be just as good. Intel won't go away. The stock buybacks and dividend increases should make Intel owners happy.
All data and charts are from finviz, and Intel 10-K 2011.
Disclaimer: The aforementioned material is not investment advice and you should make your own conclusions before investing.