Buying Intel At $23: Like Buying Coca-Cola At $23?

| About: Intel Corporation (INTC)
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by Rocco Pendola

In a recent article, where I suggested laying off of Intel (NASDAQ:INTC) for a while, a bullish reader made this comment:

Ultralong Intel. Buying it for 23 is like buying Coca Cola for 23.

That's interesting.

As I write, INTC trades at just above $23.30. Coca-Cola (NYSE:KO), meantime, goes for about $38.85. Intel's P/E ratio has sunk to below 10, while Coke's comes in at just over 20.

Without getting formulaically technical, the commenter's math adds up. In any case, he or she clearly makes the spirit of his or her point: Intel is cheap. And if Coca-Cola ever became that cheap, it would be a screaming buy.

I suppose that sentiment aligns seamlessly with Seeking Alpha contributor Anh Hoang's endorsement of Intel on purely quantitative grounds.

The more time I spend reading and writing in the space where tech and the stock market intersects, the more I'm convinced that, of the many different investor personalities, two emerge as particularly distinct.

You have folks who live and die by valuation. As Hoang argues, Intel trades at multiples this much lower than its peers, therefore, when you consider the relative strength of its balance sheet, revenue and such, it must be a buy.

Using that approach, you do not have to think much beyond, if at all, the quantitative. And you're really not even thinking all that deeply quantitatively; most folks with access to a free stock screener can come up with long ideas that way.

Then you have those less concerned with valuation. People such as myself who overweight the broad dynamics of a particular space and the stock market across sectors in general. In this instance anyway, I find the latter more interesting.

The commenter's contention that buying INTC at $23 is akin to buying KO for the same price ignores nuance between the very different spaces the two companies run in.

While I wouldn't argue that Coca-Cola lacks competition, it operates in an area that moves at a snail's pace relative to tech. Again, relatively speaking, the franchises Coca-Cola and PepsiCo (NYSE:PEP) have built up, at least in soft drinks, are not quite as vulnerable to competitive threats - outside of the longstanding cola wars - as Intel's Silicon Valley franchise.

Heck, with Apple (NASDAQ:AAPL) humming along at $700 a share, you could say the same for it.

Just like the competition came along and got the jump on Intel in mobile or rendered Research in Motion (RIMM) to single digits, it could do the same to Apple in a relatively short span of time. That probably will not happen; I'm just saying that you're more vulnerable to such encroachment when you're selling to tech consumers and businesses than you are when you're selling soda, soap, burgers and such.

At day's end, the Cokes and Pepsis of the world will generally have much more stable valuations. Noise, headwinds, threats - none of these things spook investors in these types of stocks quite like they do in an Intel.

As I have been known to argue, you really have to take an enlightened view of valuation, specifically the P/E ratio. It's less a measure of a company's worth today or in a year from now and more a gauge of the confidence level investors have in a firm's ability to fend off threats and maintain growth over the long haul.

As such, I might argue (though I need to think about it more) that KO, even at $38, is "cheaper" than INTC at $23.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.