Buy INTC @ $20
The current market swoon has many causes—European Union debt crisis, Asian contagion, US budget impasse and possible default on sovereign debt and summer doldrums. This usually means the market will be under stress and some good buys may appear. I require 4% initial yield on dividend growth stocks. INTC has raised it's dividend again to $0.21 per quarter with the next ex-dividend date 8/04/11. In order to meet my criteria, it must drop to $21 as it did on 6/27/2011 interday. With the extreme volatility in the market, I believe it could drop to $20 in the next 2 months, especially after the dividend ex date.
Why is INTC such a good buy?
It is considered one of the tech dinosaurs along with CSCO and MSFT.
There is rumor that they are not competitive in the mobile phone market.
Goldman Sachs has issued a price target of $20.
INTC has developed 3D technology in chip cores and is working on new foundaries, perhaps to take one AAPL's business as they migrate from Samsung
INTC Earnings by Year (Source First Call)
YearEarnings Per Share
2010 | $2.05 |
2011 | 2.29 |
2012 | 2.39 |
2013 | 2.33 |
Growth for 2012 is 4.37%. Five year projected growth 20.1% per year.
4% yield price = $21, while 4.2% yield price is $20.
There is the cyclical play for this stock. Since 1997, this stock has been cyclical with an average price of $20. It was possible to buy around $18 and sell around $24 several times during the past 10 years.
This summer's swoon is only a compressed up version of that cycle. I believe we are in a time of p/e multiple compression, as evidenced by growing yields on dividend growth stocks, including INTC. The yield on Dividend Challenger INTC (9 years of consecutive dividend increases) is currently 3.79% with a 1 year dividend growth rate of 12.5% and a 5 year dividend growth rate of 14.5%. The current p/e of 10.2 is more than justified by the fundamentals.
I believe that there will be a chance to buy this great stock at the bargain basement price of $20 this summer.