In June 2012 I wrote the following article ...
In Brief on 06/26/12...Intel
Intel's price today is $25.85, down from a recent high of $29. 27. It is still on track to deliver good profits and yields a very tasty 3.5% dividend. More than double the 10-year treasury yield. It supports a PE of only 10.35...
Now it is time to revisit this article and update my views.
My overall views on Microsoft & Oracle are much the same as my comments on Intel & the market in general. Cisco has not performed as well as the other three, even though it is up 20% from my last article, so the jury is still out on that one even though it holds the same PE values of the others.
What a difference two years makes. When Intel was trading around $22.00 I was very bullish on the stock and most analysts were bearish.
Today, the stock is trading around $34.50 and most analysts are bullish and I am bearish on the stock, as it may be quite a bit overvalued, as are most of the bond and stock markets.
What applies to Intel also applies to most stocks that have soared 50% and more over the past six years. To over analyze the markets is a fools pursuit & can waste a lot of valuable time, for your time is more valuable than money... often, in my world, less is more. So here are the main reasons Intel is overvalued.
- Intel is projected to grow 5% in 2014 and the stock has run up over 50%.
- From a PE a year ago of 11, it now has a PE of 17 and is only a few dollars away from an all time high.
- For me, the whole market is overvalued but that does not mean it will not keep ballooning higher.
- The dividend has shrunk to under 3%. In fact, no dividend can cushion a market drop of 20-30%, which may happen after the federal reserve halt their artificial stimulus program.
- Share buy backs and dividend hikes can only help a company so much. If earnings are only growing at 5% yearly, the stock cannot maintain 50% higher valuation in a few months
- With comments from fund managers like; "there is nowhere else to put money," the market bubble may keep on inflating, but where is the wisdom in that?
Most stocks have risen on financial engineering, which in turn has expanded the PE ratio. At some point something has to give & unless there is a massive increase in earnings, stocks will fall and like Humpty Dumpty, nothing will stick them together again until the next round of value investors take center stage.
In life, there is a time to sow and a time to reap. Sometimes the best thing to do is to do nothing and sit in cash until the smoke and mirror screens clears
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.