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Tom Armistead
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I am a retired accountant, having spent the early years of my career in the insurance industry and the later part in the field of accounting. My insurance experience has given me the willingness to accept investment risk if I feel the return justifies it; also, an interest in applying risk... More
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  • Intel: Updating My Opinion 7 comments
    Jul 16, 2014 6:53 AM | about stocks: INTC

    Back in December last year I took a somewhat unorthodox look at Intel (NASDAQ:INTC) and liked what I saw:

    With shares trading at $24 at the time, I split the difference between the market's price and my $46 indication and decided to invest on the basis shares would hit $35 by the end of 2015.

    2Q 2014 earnings were a beat and raise, with additional buybacks for a kicker. The stock made it up over $33 after hours, and at this point the situation is moving much faster than I was looking for.

    So, is there a way to get from here up to the $46 that looked so farfetched at the end of last year? The answer is yes, if you think they will ever make any money in mobile. As of the latest report, they had lost $2 billion for six months in the Mobile and Communications segment. Contra-revenue, in part. Annualized, that works out to 78 cents a share.

    TTM earnings are $2.02, using the just completed 2nd quarter. Add 78 cents, under the assumption they at least stop losing money on mobile, and you are at $2.80 per share. Applying the company's five year average P/E of 14.1, $39 comes into view. It's easy to get up over $40, if you think they might actually make money in mobile, or command a higher P/E.

    After putting this through the blender, I'm investing on the basis that shares will reach $40, again by the end of 2015. As always, a quarterly review is needed, to track developments by segment.

    Disclosure: The author is long INTC.

    Stocks: INTC
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Comments (7)
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  • Anyoption
    , contributor
    Comments (1367) | Send Message
     
    I think the biggest concern moving forward is the mobile piece. One can argue that the PC sale surge is due to MSFT ending support for XP, and there are some other nice additions that could help, like their smart wearables and Android TV, but mobile is really where the future of the company is. Some more of my thoughts here: http://seekingalpha.co...
    16 Jul 2014, 06:59 AM Reply Like
  • dancing diva
    , contributor
    Comments (2743) | Send Message
     
    Tom - Interesting analysis, but I'm curious how you decided the dividend should be capitalized at 5%?
    16 Jul 2014, 07:45 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (6215) | Send Message
     
    Author’s reply » dd, I pulled it from the air. I back-tested the idea using Portfolio123 with favorable results, here's a link:

     

    http://seekingalpha.co...

     

    I also experimented with multiple linear regressions to see if I could refine my guesswork, but nothing came of it.

     

    So I think the basic idea is sound: if a company can do R&D and capex, and still pay a dividend, it's an indication of strength and ability to invest in the future, which leads to above average returns over time.
    16 Jul 2014, 07:59 AM Reply Like
  • dancing diva
    , contributor
    Comments (2743) | Send Message
     
    Thanks! The back test was interesting, but I wonder what would have happened if you isolated the dividend from the capex and R&D. For example, did you back test companies that paid a good dividend but didn't spend all that much on capex and r&d and visa versa?
    16 Jul 2014, 10:25 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (6215) | Send Message
     
    Author’s reply » What I've done was to include other considerations in a screen and apply multiples to all them, to include capex, R&D, current ratio, debt level, dividend and buybacks.

     

    It backtests extremely well, but produces a disproportionate amount of Energy, Tech and Pharma.

     

    Although I've been limiting myself to dividend growth type stocks, the dividend doesn't seem to be key, at least not the size. Just paying it is enough.
    16 Jul 2014, 10:44 AM Reply Like
  • neobliviscar
    , contributor
    Comments (251) | Send Message
     
    Love it. Thanks for the read.
    16 Jul 2014, 10:02 AM Reply Like
  • MisterJ
    , contributor
    Comments (1176) | Send Message
     
    Thanks for sharing your ideas with us. I couldn't agree more. It is most important to me that Intel spent heavily on capex last two years and we are seeing the fruits of the effort now.
    16 Jul 2014, 10:16 AM Reply Like
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