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danielosborne
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I am an investment professional currently working for the amazing Wall Street Bad Boys.
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NextCandle.com
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  • Stock Of The Week: Is Intel (INTC) Undervalued (In This Economy)?  0 comments
    May 4, 2012 12:46 PM | about stocks: INTC, NVDA, ARMH, MSFT, IBM, TXN, QCOM

    For some time, some analysts have been suggesting that Intel Corporation (NASDAQ:INTC) is undervalued but just how undervalued is it - especially in what appears to be a slowing economy? Consider the following Intel facts or anecdotes:

    • In early February 2011, Credit Suisse said that Intel Corporation (INTC) was significantly undervalued and cited double digit revenue growth and share gains in non-traditional markets. Credit Suisse gave the stock an outperform rating with a $28 price target that the company hit in March 2012 for a seven year high.
    • Intel Corporation (INTC) did beat analysts' expectations for the first quarter but earnings fell 13% as spending on research and marketing rose on flat sales due in part to the lingering impact of flooding in Thailand.
    • Intel Corporation (INTC) has a P/E ratio of just under 12. In contrast, other tech giants like Qualcomm (NASDAQ:QCOM) has a P/E ratio of around 22, Texas Instruments (NASDAQ:TXN) has a P/E ratio of under 20, International Business Machines (NYSE: IBM) has a P/E ratio of 15.40 and Microsoft Corporation (NASDAQ:MSFT) has a P/E ratio of around 11.40. In addition, new kids on the block chip stocks NVIDIA Corporation (NASDAQ:NVDA) has a P/E ratio around 13 and ARM Holdings plc (NASDAQ:ARMH) has a P/E of over 53.
    • Intel Corporation (INTC) wants to challenge the dominance that ARM Holdings plc (ARMH) has in mobile-phone chip architecture by ramping up factories for chips that offer better performance and efficiency that are ideal for use in smartphones, tablets and Ultrabooks. Until those factories are ramped up, Intel Corporation (INTC) will have lower gross margins as the initial chips will be more expensive plus the company still needs to invest a great deal in research and development.
    • PC growth is not exactly surging but demand is expected to grow in the third quarter of this year when Microsoft Corporation (MSFT) launches Windows 8. However, whether consumers and businesses especially rush out to buy Windows 8 is a question mark at this point in time. On the other hand, the first Intel-based smartphones will become available in the second quarter, demand in emerging markets is sustaining PC growth overall and Intel's server business has come out a winner from the need for servers for the Internet and the data consumed on smartphones.
    • For investors needing income, Intel Corporation (INTC) pays a forward dividend of $0.84 for a dividend yield of close to 3% and a historic payout ration of roughly 34%. That's not bad for a tech stock. Then again, one has to wonder why a tech stock can't find something better to do with its cash other than to pay a 3% dividend yield.

    Finally, it's worth talking mentioning the economic "recovery" or the increasing signs of a lack of one or at least a slowdown going into summer (see our wrap-up of last week's and this week's economic data announcements). In reality, investors need to remember its also an election year and there is plenty of behind the scenes pump priming going on that should keep the economy going (even if its just above life support) until after the elections when there are even bigger concerns such as the expiration of the Bush tax cuts (including tax cuts on dividends paid by stocks like Intel), the expiration of the temporary payroll tax deduction and new taxes to pay for Obamacare. How this will impact next year's demand for PCs along with all the other new fangled devices that require chips remains to be seen.

    So is Intel Corporation (INTC) undervalued right now? I'd probably need to say YES and that Intel Corporation (INTC) is probably going to have a good year while its dividend is also looking rather juicy but that does not mean that its current price right now (or several months from now) will be considered undervalued when the elections are over with and everyone's taxes start rising. Until then and especially for traders, keep an eye on your NextCandle.com stock forecasts as there will inevitably be plenty of daily direction changes to take advantage of.

    NOTE: THIS PIECE WAS JUST POSTED ON THE NEXTCANDLE.COM BLOG.

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