Intel: An Undervalued Buy For 2012

| About: Intel Corporation (INTC)

For people with a fear of small company stock investments, nothing is better than a dose of gigantic market share. Intel (INTC) has pushed most of its competitors to the sidelines, or taken them in as collaborators, like Micron Technology (MU). With the first quarter sliding to a close, analysts cite Intel as one of the reasons things are looking up. An entry into the mobile microprocessor market gave Intel a little boost. Meanwhile, its tried and true server component keeps it ahead of the game, no matter who is playing.

The case for Intel starts with its competitive history and strong fundamentals. It has always dominated the semiconductor market, and 2011 showed it with a 10-year high at 15.6% of the overall market. Many Intel fans point to its 11.8 earnings multiple as evidence that this is one stock that will only treat you well in the long run. And unlike the over $600 per share monsters Google (GOOG) and Apple (AAPL), Intel is trading around $28 per share, which is a share price Intel hasn't seen since 2005. While Intel seems unflappable, it also has a scale advantage that is incomparable when you look at its stock price today.

One of the major problems for investors who want a stock they can trust - and yes, some investors only invest where they feel safe, even within the stock market - is that trustworthy stock is usually priced so high by the time most of us find out about it that it's tough to get a decent number of shares. And I say that from the perspective of someone who only bought a few shares when Apple was trading at $212 per share. It pays to hang on to good stock, but even at over $200 a share, not everyone is going to get a nice big chunk that they can just sit on and watch. At $28 per share, even the little guy can stuff his or her portfolio. Assuming, once again, some level of confidence and - dare I say it? - safety.

Intel is that stock. With a confidence building history, huge size, and a 3.3% dividend, Intel is probably one of the most undervalued stocks out there. In the past couple of months, fears were voiced about Intel's focus in PC chips while the rest of the world moved steadily toward tablets, smart phones, and personal devices that require a different chip altogether. Then Intel mentioned it was going mobile too, and the markets responded favorably. I can imagine what other mobile chip-makers are thinking. Something along the lines of "No! Please, no!"

Competitors that are still in business

Intel is notorious for the way it has edged out or bought competitors. Rumors fly about the way faster chip companies have been bought and then dismantled by Intel in a cutthroat way. But those are just rumors, right? Nonetheless, let's have a look at the competition that is still standing.

ARM Holdings (ARMH) is not a tiny company. It stands its ground and is looking at a Chrome OS partnership. So far, it's just Intel in the Chromebook options, Acer's AC700 and Samsung's Series 5 Chromebook, but ARM-based processors may be supported also in the near future. Good news for ARM in general, but it is still just playing catch-up. In fact, most of the news about ARM comes up when Intel does something exciting and financial reporters feel obliged to include something about "the competition". ARM is also trading at around $28 per share, and it may be a good investment. But it cannot stand up to Intel's incredible size. Last year's annual dividend was $0.13 and 2011 EPS was $0.41. Intel's 2011 dividend was $0.78 with EPS on the year at $2.47.

Advanced Micro Devices (AMD), which you have no doubt heard of before - okay, maybe not - is also competing for market share with Intel. At just $8 per share, it may also be a bit undervalued. But sadly, the company is usually more of a footnote to news about Intel than a newsmakers itself. It recently acquired SeaMicro, a move that was intended to help them regain some of the lost server market, market share that was "lost" to Intel.

Giant Among Giants Doesn't Need Encouragement

But Intel will take any encouragement it can get. Supposedly someone has leaked news of Valley View, the code name for a 22nm Atom processor, scheduled to be released in 2013. Allegedly this will include 4 cores and outdo previous Atom processers with "4x the graphics performance". This puts them on the path to rival Apple in the tablet market and Qualcomm (QCOM) in the smartphone market, if it puts that kind of chip in netbooks which are considered a more user friendly version of tablet connectivity. If you're going to buy a keyboard, might as well get a netbook. This may also be the competition that Intel erects to keep ARM from making any kind of significant entry into the ultrabooks market.

Atom processors make it entirely possible that Intel will garner as much as 20% of market share. Some analysts estimate a pretty incredible rise in stock price if that happens. Can you say a rise to $37 per share? It's not impossible, and some analysts are setting that as highly likely, with more than one route for Intel to take. Remember how Intel might be seriously underpriced? This is where you make your move to get in early enough to take advantage.

If you need one more hint of how good Intel is right now, maybe it's best to just look back. Intel dominates the server market in a way that is impenetrable. And current estimates put the server market at double its current capacity in the next five years. Even if that is a bold estimate, conservative estimates still put Intel at a 10% increase within the next six years. Even if that sounds like a long time to you, waiting will get you what you want. I'm happy to get in on the fun now and wait it out for a big payoff with a big, and confident, tech stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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