I've long believed that the efficient market hypothesis is fairly inaccurate because it depends the concept of rational actors. If all actors were rational, stocks would never go into bubble mode and become overvalued -- and conversely, they'd never be available at attractive valuations.
Fortunately, actors aren't rational, and in times like the present, many stocks sell off to prices that just don't make sense. One such stock is Intel (INTC), one of the most dominant chipmakers in the world -- and my personally preferred one. (Intel Core i5 presently, considering an upgrade in the near future.)
Intel's dip represents a buying opportunity for several reasons that I'll outline below.
INTC data by YCharts
- Valuation: at a P/E of 10.95, Intel is currently trading well below its historical average P/E.
- Intel has consistently beat earnings projections, with 11 of the past 12 quarters classifying as a "positive surprise." (This means consensus earnings estimates were beat by at least 2%.) Only one earnings miss has occurred in the past 12 quarters, and the last six have all been positive by at least 4.7%.
- Intel has logged EPS growth of 22.68% annualized over the past five years. This beats the semiconductor industry by a handy 10%. Over the same time period, Intel has also grown cash flow by 14% annually, while the industry grew by only 11%. On a TTM basis, Intel has logged 8.26% EPS growth, compared to a staggering 49.10% loss for the industry as a whole.
- While Intel has been criticized for lagging in the quickly-growing mobile sector, they're correcting this. Their Ivy Bridge line now includes mobile processors used in tablets like Surface.
- Intel is well-run. Gross margin of 74.5% is 15% above the industry average. Profit margin (21%) beats the industry average (15%) as well. This advantage holds for EBITD and Operating Margin as well.
- Intel has a solid balance sheet, with over 4B in cash/equivalents and a debt/equity ratio of 15% (compared to an industry average of 22%).
- Analyst consensus is largely positive. Of 53 firms covering the stock, 13 have a "strong buy," 12 have a "buy," 23 have a "hold," and only 5 have a "reduce." No analysts currently have a "sell" rating on Intel.
- Intel is very shareholder-friendly, with a history of increasing dividends and buying back shares. The current quarterly dividend of $0.21 ($0.84 annualized) represents a 3.20% yield at current stock prices. (See chart below for dividend increases and stock buyback.)
INTC Shares Outstanding data by YCharts
Disclaimer: I am an individual investor, not a licensed investment advisor or broker dealer. Investors are cautioned to perform their own due diligence. All information contained within this report is presented as-is and has been derived from public sources & management. Always contact a financial professional before making any major financial decisions. All investments have an inherent degree of risk. The future is uncertain, and actual results may be materially different from those expected. Past performance is no guarantee of future results. All views expressed herein are my own, and cannot be interpreted as the views of my employer(s) or any organizations I am affiliated with. Presentation of information does not necessarily constitute a recommendation to buy or sell. Never make any investment without conducting your own research and reading multiple points of view.
Disclosure: I am long INTC.