
Intel Is About to Make the Naysayers Look Foolish
A roster of speakers at the Republican National Convention last night in Cleveland angrily depicted America as a dysfunctional hellhole, with an economy in tatters and businesses under siege. It's your democratic right to believe the gloomy rhetoric and get out of stocks...if you want to miss future profits.
Levelheaded investors prefer instead to focus on U.S. economic growth and second-quarter earnings reports, both of which are telling an upbeat story. One sector with particular momentum now is technology.
Below, why Intel (INTC) - Get Report is a compelling bargain in the resurgent technology sector; you should buy this chip-making giant ahead of its earnings report tomorrow.
The broader indices eked out modest gains yesterday; leading the way were technology stocks. A catalyst for the tech surge was Japan-based SoftBank's announcement that it was acquiring UK-based chip maker ARM for $32 billion. ARM's U.S.-listed stock jumped 41% on the news.
Also poised for big gains this year is Santa Clara-based Intel. Many analysts deride Intel as a technological has been, but nothing could be further from the truth. When the prevailing wisdom is wrong (whether in politics or finance), that's when value investors should pounce.
Intel reports second-quarter earnings on Wednesday, after the market closes. The average analyst estimate is that earnings-per-share (EPS) will come in at 53 cents, compared to 55 cents in the same quarter a year ago, only a slight year-over-year dip. Keep in mind, the company exceeded consensus EPS expectations by at least 5 cents in the previous four quarters. In the third quarter of fiscal 2016, EPS is projected to hit 65 cents, compared to 64 cents a year ago.
The chip-making behemoth is strategically pivoting away from its declining PC business to plow considerable resources into the manufacture of ever-faster chips for mobile devices. Intel came late to the smart phone party, but it's making up for lost time. The continuing recovery of the U.S. economy and concomitant acceleration in tech spending are tailwinds for Intel.
With a market cap of $165.51 billion and a huge cash hoard of $15.29 billion, Intel is among the biggest tech spenders on research and development, which keeps it in the vanguard of innovation. Supercomputer leader Cray, at the company's first-quarter earnings call in May, highlighted two processors vital to powering its major supercomputing product releases in 2016: Intel's Broadwell-EP line of traditional Xeon E5 processors and Intel's Knights Landing-based Xeon Phi processors. Both processors are considered leading edge and Cray's products are deeply dependent on them to function.
Intel also has a sterling record of generating robust and growing income. The company pumped out cash dividends of 45 cents annually even at the depth of the financial crisis in 2008 and has grown them every year, despite the stock's volatility. In 2015, Intel hiked its dividend by 7% on a year-over-year basis. At a dividend yield of 2.97%, Intel's dividend is equal to that of Microsoft's, but with a better track record of earnings growth.
Intel stock is only up 1.74% year to date, compared to 6.15% for the S&P 500, which gives you a chance to ride technology's upswing at a discount. Intel's trailing 12-month price-to-earnings ratio (P/E) of 14.97 is low compared to those of Microsoft (41.60), Texas Instruments (22.75) and the semiconductor industry (22). Buy undervalued Intel now, before its likely post-earnings rally. And tune out the doomsters, who don't care about your portfolio and use fear to get your vote.
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John Persinos is an editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no holdings in the stocks mentioned.










