Potential New Dividend Winning Stocks For The Next 20 Years [View article]
Some nice calculations, R.S. I sometimes run similar ones myself. But please consider 3 pitfalls in your assumptions. Maybe you might want to re-calculate, using assumptions which are different.
(1) when you buy 100 shares of each stock, your "portfolio" will consider mainly of AAPL's stock. Is that really what you wanted?
(2) if share price indeed grows by 8% p.a. and dividends grow by 5% p.a., then 20 years out in time, dividend yield will have decreased by a factor of 1.76x. This is pretty unrealistic, don't you think? More reasonable, IMO, would be to increase both price and dividend in tandem, or to allow a faster price than dividend growth only for very much underpriced companies (as of now).
(3) when you look out as far ahead as 20 years, then I am certain you cannot ignore inflation. IMO, figuring in a 2.5% or 3% inflation rate will produce lower results, but they'll be more realistic.
Intel Will Hit A Share Price Of $36 By 2016 [View article]
Gregory,
I praise your article for its laudable intention. Estimating a stock price two years out in time, on the basis of how earnings might develop until then, is quite a reasonable undertaking. I cannot understand the comments by @HARRYWINS or @rnn who ridicule you for that; I assume they just did not want to take the trouble to check out your reasoning.
When an exercise like you undertook is done right, it can yield useful results. But I am afraid this cannot be done the way you did it. The way I see it, you made two fateful mistakes: First you started out with 2012 EPS of $2.39; quite an exaggeration. Intel made only $2.13 last year. And secondly, when you estimated additional income that might materialize during the next two years, you simply assumed that the income they generated in 2012 "was in the bag" already; that Intel could simply count on receiving that same income again in 2015, plus your estimated additional income on top.
If you want to make a realistic estimate for 2015, you have to calculate the EPS you expect then from the ground up, i.e. estimate the actual revenues of each business segment (not delta revenues), and multiply each by an appropriate net profit margin. I wonder if you care to go back to the drawing board and generate a corrected share price estimate; without the errors that your article contains.
Perhaps you should keep in mind that achieving profitability for Intel's OIA and SSG business segments won't be easy; so far they have generated operating losses most of the time ($ 1.39B in 2012 and 0.61B in 2011). So there must be considerable expenses associated with these businesses. I am rather doubtful whether a mere $5B of extra revenue in 2015 (just 74% more revenue than they generated in 2012) can drive these segments into profitability, and a 20.6% net margin on both (as you had assumed) seems out of the question to me.
In addition, Intel usually generates a loss of approx. $2B every year from what they call "all other business activities". Intel's 10-K statement for 2012 states a few details on "all other" on page 93. When you add up net income from PCCG + DCG + OIA + SSG, you must subtract these $2B, unless you come to the conclusion that their NAND business (which is part of "all other") will become so profitable by 2015, that it will compensate for all the other loss activities.
I don't necessarily disagree with your projection of a share price of $36 by 2015, but I am sure we need a more realistic earnings projection than your article delivered, to provide a firm basis for this.
Intel - Mobile Will Compensate PC Decline [View article]
Thanks for your informative overview article, Sneha. You painted a comprehensive picture of the ultra-mobile business for me, together with some of the other articles you referenced (your blogs of 15-oct and 24-aug 2012); a picture I find reasonably realistic. One of your key remarks sums up the situation rather well, I believe: "it's only a matter of time before Intel will carve out a big chunk of … market share (here)". You may find lower PC growth prospects the (primary) reason for INTC's low stock price now, but please bewa-re: nobody in the world can tell for sure, just exactly how, just exactly which factor(s) drive the market price of any one company by how much at any particular time. I'm personally convinced that all the uncertainties pertaining to Intel's future business and profitability play a much higher role, but that is only my educated guess; nothing more. I agree with your overall conclusion that INTC should be a top pick for level-headed investors at its current price and dividend yield. Despite some missteps on their part in the past, I find them the most admirable player in one of the most significant high-tech industries (ICs or more specifically "intelligent silicon"); an industry that will retain its significance for a long time to come, so I am convinced.
Your article sounds like it's been written by a Rip Van Winkle-type character. A fellow who has been asleep for the past 15 years, who just woke up again, and who is trying to understand this new world around him. No wonder then that he is misinterpreting this and that, and some of his "insights" sound a bit queer. Just two things I like to ask you:
(1) why in the world did you come to the conclusion that you should write a Seeking Alpha article?
What Intel's Situation Bodes For The Entire IT Space [View article]
Dr. Leeb,
You cannot blame IT (and Moore's Law) progress for all ailments that have befallen humanity lately. It seems to me that the problems of health care spending (combined with sub-optimal results) have been caused primarily by lobbying groups that are too strong, in the US and in counties like Germany, for instance.
And the decrease of real income with time has been caused primarily by factors such as the evolution of the tax code (since Ronald Reagan) and by allowing the forces of globalization to develop without meaningful and sensible checks, i.e. by blindly trusting in the forces of the market. And by allowing the financial system to take on ever more power and influence.
So please tell me: how do you think these factors relate to IT and Moore's Law progress?
Intel: Just How Much Capacity Do They Have? [View article]
re: company announcements
Hasn't Intel been telling the world for more than a year now that very few IC companies will be able to continue affording their own fabs in the future, once it will cost around $10B to build one and do the R&D for process development? Their charts mention Intel + Samsung + TSMC as the only three who'll be able to pull that off, if I recall correctly.
Now granted that not every IC in the world needs to be made in a leading edge fab; that's why not all other IC makers practice the fabless model now. But as soon as a system is made up of two, three, or more ICs now, and as chipmakers understand better to integrate these different ICs into one SoC, it may well be necessary (for competitive reasons) to make such SoCs in a leading edge fab.
So it seems to me that Intel's excess fab capacity (right now) could get used up quickly for all the ICs, which the (future fabless) rest of the IC industry wants built but can no longer, for lack of fabs of their own.
AT&T: Valuing The Stock On The Basis Of Its Dividends [View article]
Shrideep,
That's a nice calculation you presented there, but unfortunately it is totally meaningles. Reason is the form of your equation. Anytime you try to estimate a value (like the fair value of T) with an equation that is proportional to the inverse of the difference between two small numbers, each of which cannot possibly be nailed down with accuracy, you end up with a highly questionable result.
T's cost of capital (WACC to be precise) can be anywhere from 6.5% (perhaps even 6% at today's interest rates) to 8%. And who knows what T's average dividend growth rates wil be in the future. Keep in mind that your equation requires that you estimate average dividend growth from now until forever! If T raises its dividend by just a penny per quarter, like they have done for the last several years, this growth rates is only 2.26% and falling.
But if their wireless business comes to increase faster and take on an ever larger percentage of their total earnings, they may reach DGRs of 5% someday, or at least 3% soon, the rate of inflation; something their investors will demand sooner or later. So here is what the fair value of T calculates out to be, at (or near) the extremes of these (very possible) assumptions:
DIV(2013)=1.81; WACC=8%, DGR=2.26% => FV=$31.53 but at WACC=6%, DGR=5% => FV=$181.00 even at WACC=6.5%, DGR=5% => FV=$120.66 and at WACC=6.5%, DGR=3% => FV=$51.71
As you can see plainly, FV varies all over the map, depending on which assumptions you choose for WACC and DGR. And since neither you nor I, nor Bloomberg, nor Warren Buffett precisely know what these values will turn out to be, we won't have a clue of the fair value of T, when we calculate it using the equation you offer us.
Samir, I go one step further than DividendGrowthMachine: I find your article the best and most thorough analysis on INTC that I have read for a long time, anywhere. My compliments on it! I have not come across a conclusion you presented that I disagree with so far. Perhaps because I did not take much time for reading, but I suspect also because your conclusions make a lot of sense.
And the article is well written too. I found it quite readable despite its length. Thanks also for all the links you supplied for digging deeper into several subjects, plus a brief summary in most cases.
I am convinced that you have provided a great service to SA readers.
PS: please explain the meaning of "Please feel free to contact me through PM"
Building A Do-It-Yourself Dividend Portfolio - Part 6: Technology [View article]
I just started reading your series of arcticles. Unfortunately they don't allow me a sensible conclusion yet on Parsimony. It seems to me that EITHER you can provide a great service to DIY investors, OR what you provide is a lot of hot air spiced up with many numbers and some statistics.
Whether it is one or the other, depends on your methodology for deriving your five main rating factors, mainly risk/reward …. dividend potential. And on your algorithm for generating your composite Parsimony Rating, from these 5 factors, and perhaps from some of your dividend metrics as well.
I assume that the details of your rating system are proprietary, but nevertheless I ask you to provide readers interested in your services with some meaningful information on (a) how you derive each of your five rating factors, and (b) how you aggregate them (plus perhaps other data) into your composite rating. I would very much appreciate this info and thank you in advance for your help.
The Next Transcendent Development In Technology And The Companies Involved [View article]
Brian, I am glad you added this qualifier to the end of your article. In my opinion, you went a bit too much gung ho on gaming via TV sets. Personally I have many doubts on this particular application of technology, considering that real gamers crave very high-performance hardware, and also that games appear to offer too little extra for couch potatoes.
But I agree with your preference for companies focused on ecosystems. As long as a company tries to make every dollar that can be made all by itself from a new technology (or a new idea based on an older technology like MP3 players), like AAPL did that with the iPod and iTunes, it will probably never capture more customers than those stupid enough to fall for the Apple cult the company cultivates. I admit that it cultivates this cult cleverly, but even-tually a mere cult has its limits.
Focusing on a new ecosystem, however, and allowing others to share in new revenue streams that develop, seems to me to have far higher chances of success, because this way you are enlisting others to help you, by allowing them to make some of the profits that can be made. So I personally favor companies like Intel and Google over Apple any day.
Plus Intel has the advantage of paying every one of their owners a higher than 4% dividend yield at the moment, so their shares represent a tangible value.
Potential New Dividend Winning Stocks For The Next 20 Years [View article]
(1) when you buy 100 shares of each stock, your "portfolio" will consider mainly of AAPL's stock. Is that really what you wanted?
(2) if share price indeed grows by 8% p.a. and dividends grow by 5% p.a., then 20 years out in time, dividend yield will have decreased by a factor of 1.76x. This is pretty unrealistic, don't you think?
More reasonable, IMO, would be to increase both price and dividend in tandem, or to allow a faster price than dividend growth only for very much underpriced companies (as of now).
(3) when you look out as far ahead as 20 years, then I am certain you cannot ignore inflation. IMO, figuring in a 2.5% or 3% inflation rate will produce lower results, but they'll be more realistic.
What do you think?
Intel Will Hit A Share Price Of $36 By 2016 [View article]
I praise your article for its laudable intention. Estimating a stock price two years out in time, on the basis of how earnings might develop until then, is quite a reasonable undertaking. I cannot understand the comments by @HARRYWINS or @rnn who ridicule you for that; I assume they just did not want to take the trouble to check out your reasoning.
When an exercise like you undertook is done right, it can yield useful results. But I am afraid this cannot be done the way you did it. The way I see it, you made two fateful mistakes: First you started out with 2012 EPS of $2.39; quite an exaggeration. Intel made only $2.13 last year. And secondly, when you estimated additional income that might materialize during the next two years, you simply assumed that the income they generated in 2012 "was in the bag" already; that Intel could simply count on receiving that same income again in 2015, plus your estimated additional income on top.
If you want to make a realistic estimate for 2015, you have to calculate the EPS you expect then from the ground up, i.e. estimate the actual revenues of each business segment (not delta revenues), and multiply each by an appropriate net profit margin. I wonder if you care to go back to the drawing board and generate a corrected share price estimate; without the errors that your article contains.
Perhaps you should keep in mind that achieving profitability for Intel's OIA and SSG business segments won't be easy; so far they have generated operating losses most of the time ($ 1.39B in 2012 and 0.61B in 2011). So there must be considerable expenses associated with these businesses. I am rather doubtful whether a mere $5B of extra revenue in 2015 (just 74% more revenue than they generated in 2012) can drive these segments into profitability, and a 20.6% net margin on both (as you had assumed) seems out of the question to me.
In addition, Intel usually generates a loss of approx. $2B every year from what they call "all other business activities". Intel's 10-K statement for 2012 states a few details on "all other" on page 93. When you add up net income from PCCG + DCG + OIA + SSG, you must subtract these $2B, unless you come to the conclusion that their NAND business (which is part of "all other") will become so profitable by 2015, that it will compensate for all the other loss activities.
I don't necessarily disagree with your projection of a share price of $36 by 2015, but I am sure we need a more realistic earnings projection than your article delivered, to provide a firm basis for this.
Intel: $48 Per Share In 4 Years [View article]
Intel - Mobile Will Compensate PC Decline [View article]
You may find lower PC growth prospects the (primary) reason for INTC's low stock price now, but please bewa-re: nobody in the world can tell for sure, just exactly how, just exactly which factor(s) drive the market price of any one company by how much at any particular time. I'm personally convinced that all the uncertainties pertaining to Intel's future business and profitability play a much higher role, but that is only my educated guess; nothing more.
I agree with your overall conclusion that INTC should be a top pick for level-headed investors at its current price and dividend yield. Despite some missteps on their part in the past, I find them the most admirable player in one of the most significant high-tech industries (ICs or more specifically "intelligent silicon"); an industry that will retain its significance for a long time to come, so I am convinced.
Intel's Turn To Chip In [View article]
Your article sounds like it's been written by a Rip Van Winkle-type character. A fellow who has been asleep for the past 15 years, who just woke up again, and who is trying to understand this new world around him. No wonder then that he is misinterpreting this and that, and some of his "insights" sound a bit queer. Just two things I like to ask you:
(1) why in the world did you come to the conclusion that you should write a Seeking Alpha article?
(2) what (if anything) are you trying to tell us?
What Intel's Situation Bodes For The Entire IT Space [View article]
You cannot blame IT (and Moore's Law) progress for all ailments that have befallen humanity lately. It seems to me that the problems of health care spending (combined with sub-optimal results) have been caused primarily by lobbying groups that are too strong, in the US and in counties like Germany, for instance.
And the decrease of real income with time has been caused primarily by factors such as the evolution of the tax code (since Ronald Reagan) and by allowing the forces of globalization to develop without meaningful and sensible checks, i.e. by blindly trusting in the forces of the market. And by allowing the financial system to take on ever more power and influence.
So please tell me: how do you think these factors relate to IT and Moore's Law progress?
Intel: Just How Much Capacity Do They Have? [View article]
Hasn't Intel been telling the world for more than a year now that very few IC companies will be able to continue affording their own fabs in the future, once it will cost around $10B to build one and do the R&D for process development? Their charts mention Intel + Samsung + TSMC as the only three who'll be able to pull that off, if I recall correctly.
Now granted that not every IC in the world needs to be made in a leading edge fab; that's why not all other IC makers practice the fabless model now. But as soon as a system is made up of two, three, or more ICs now, and as chipmakers understand better to integrate these different ICs into one SoC, it may well be necessary (for competitive reasons) to make such SoCs in a leading edge fab.
So it seems to me that Intel's excess fab capacity (right now) could get used up quickly for all the ICs, which the (future fabless) rest of the IC industry wants built but can no longer, for lack of fabs of their own.
AT&T: Valuing The Stock On The Basis Of Its Dividends [View article]
That's a nice calculation you presented there, but unfortunately it is totally meaningles. Reason is the form of your equation. Anytime you try to estimate a value (like the fair value of T) with an equation that is proportional to the inverse of the difference between two small numbers, each of which cannot possibly be nailed down with accuracy, you end up with a highly questionable result.
T's cost of capital (WACC to be precise) can be anywhere from 6.5% (perhaps even 6% at today's interest rates) to 8%. And who knows what T's average dividend growth rates wil be in the future. Keep in mind that your equation requires that you estimate average dividend growth from now until forever! If T raises its dividend by just a penny per quarter, like they have done for the last several years, this growth rates is only 2.26% and falling.
But if their wireless business comes to increase faster and take on an ever larger percentage of their total earnings, they may reach DGRs of 5% someday, or at least 3% soon, the rate of inflation; something their investors will demand sooner or later. So here is what the fair value of T calculates out to be, at (or near) the extremes of these (very possible) assumptions:
DIV(2013)=1.81; WACC=8%, DGR=2.26% => FV=$31.53
but at WACC=6%, DGR=5% => FV=$181.00
even at WACC=6.5%, DGR=5% => FV=$120.66
and at WACC=6.5%, DGR=3% => FV=$51.71
As you can see plainly, FV varies all over the map, depending on which assumptions you choose for WACC and DGR. And since neither you nor I, nor Bloomberg, nor Warren Buffett precisely know what these values will turn out to be, we won't have a clue of the fair value of T, when we calculate it using the equation you offer us.
best regards, Ulrich
Intel: Inside Track On The Next Decade [View instapost]
And the article is well written too. I found it quite readable despite its length. Thanks also for all the links you supplied for digging deeper into several subjects, plus a brief summary in most cases.
I am convinced that you have provided a great service to SA readers.
PS: please explain the meaning of "Please feel free to contact me through PM"
Building A Do-It-Yourself Dividend Portfolio - Part 6: Technology [View article]
Whether it is one or the other, depends on your methodology for deriving your five main rating factors, mainly risk/reward …. dividend potential. And on your algorithm for generating your composite Parsimony Rating, from these 5 factors, and perhaps from some of your dividend metrics as well.
I assume that the details of your rating system are proprietary, but nevertheless I ask you to provide readers interested in your services with some meaningful information on
(a) how you derive each of your five rating factors, and
(b) how you aggregate them (plus perhaps other data) into your composite rating.
I would very much appreciate this info and thank you in advance for your help.
Can Bank Of America Really Hit $30? [View article]
Do you care to let us in on your rationale for your price prognoses, in case you have one?
The Next Transcendent Development In Technology And The Companies Involved [View article]
But I agree with your preference for companies focused on ecosystems. As long as a company tries to make every dollar that can be made all by itself from a new technology (or a new idea based on an older technology like MP3 players), like AAPL did that with the iPod and iTunes, it will probably never capture more customers than those stupid enough to fall for the Apple cult the company cultivates. I admit that it cultivates this cult cleverly, but even-tually a mere cult has its limits.
Focusing on a new ecosystem, however, and allowing others to share in new revenue streams that develop, seems to me to have far higher chances of success, because this way you are enlisting others to help you, by allowing them to make some of the profits that can be made. So I personally favor companies like Intel and Google over Apple any day.
Plus Intel has the advantage of paying every one of their owners a higher than 4% dividend yield at the moment, so their shares represent a tangible value.
Best regards, Ulrich