Here Is Why Shares of Intel Are Still a Terrific Long-Term Option

Sentiment has soured on the giant chip maker, but we think it is still a great long-term bet.
By Thomas Scarlett ,

Investing for the long term generally means selecting high-quality stocks and sticking with them even when times get tough.

But sometimes a company that was perfectly suited to its market in one decade can get left behind in the next. The only way to guarantee profits is to keep up with market trends and make sure that stock investments are still the best available.

No industry moves faster than the personal technology business. On Monday, Yahoo!, a key Silicon Valley player in the early days of the Internet, said that telecommunication giant Verizon Communications will buy its core assets for almost $5 billion.

Change is happening in other sectors of this market as well.

Smart stock analysts have been recommending Intel (INTC) - Get Report for more than a quarter of a century, and many investors already have it in their long-term growth portfolios. But in an era when personal computers are less important than mobile devices and cloud computing, does Intel have what it takes to stay on top?

Intel's most recent earnings report shows that it is still adjusting its strategy for the post-PC era. But it still has a lot of strengths such as consistent revenue and earnings growth over several quarters, modest debt levels by most measures, steady stock price performance and a reasonable price-earnings ratio of less than 17.

The company reported revenue of $13.53 billion for the second quarter, up 3% from a year earlier. That was slightly below what Wall Street analysts had been projecting.

On the other hand, earnings came in at 59 cents a share, beating analysts' estimates of 53 cents.

The company has expanded beyond its original core mission of making chips for desktop computers into the more diverse technology world of the 21st century. Results have been mixed.

Intel's client computing group, which encompasses both its PC and mobile business, earned $7.3 billion in the second quarter, down 3% from a year earlier.

But the programmable solutions group had revenue of $465 million, an increase of 30% from the previous quarter. This demonstrates that Intel's $16.7 billion acquisition of field-programmable gate array chip maker Altera has paid off.

Intel Chief Financial Officer Stacy Smith has high hopes for the company's expansion into the Internet of Things.

Eventually, he predicted, cars will be rolling computers, allowing for not only self-driving vehicles but also for the gathering of enormous amounts of data about any locality passed through on a journey.

And these rolling computers will need the processing power that Intel can provide.

Intel continues to have a strong relationship with Apple, which remains the boss of bosses in the technology sector. A new generation of low-power chips suitable for tablets will be shipping out from Intel's facilities soon, with more powerful chips expected to be used in iMac, MacBook Pro and any potential Mac Pro revisions shipping at a later date.

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During a recent investor's conference call, Smith said that though yields of the new processors in the first quarter were good, "they got a lot better in Q2 as well," allowing Intel to accelerate its schedule for putting out new chips.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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