Undervalued Intel Offers 25% Upside

The following commentary comes from an independent investor or market observer as part of TheStreet's expert contributor program.

SANTA CLARA, California ( TheStreet) -- Chip giant Intel ( INTC) continues to be one of a handful of stocks that I think investors would be wise to add this week ahead of the company's scheduled earnings announcement on Tuesday.

With a price-earning ratio of 11 and trading at $28, there is considerable upside potential by at least 25% towards my fair market value of $35.

Intel continues to suffer from a market that has turned its attention towards the new kids on the block - names that include ARM Holdings ( ARMH) and Nvidia ( NVDA). But astute investors should seize this opportunity to add to their positions as there is clear evidence that the company continues to be underappreciated for performances that would have placed lesser-known companies in higher regard.

Be that as it may, Intel does not appear bothered by the obvious lack of respect.

Expectations for the quarter

The company just continues to churn out one good quarter after the next, and Tuesday will be no different.

In its most recent announcement, Intel reported a 6% increase in net income to $3.4 billion - a number that topped analyst estimates -- while also reporting revenue growth of 21% to $13.9 billion. As far as what to expect for the coming announcement, I'm looking at revenue between $12.3 billion and $13.3 billion, the range the company provided in terms of guidance.

From a "market pleasing perspective," I would expect the company to (at minimum) hit the $12.8 billion mark. While it would represent an 8% drop sequentially, it would further affirm my bullish sentiment as well as my $35 target.

This is despite the fact that gross margin is expected to decline by 1.5%. What I continue to find interesting is that Intel still does not get enough credit for having also become a "services company" - to the extent that it saw 7% growth in revenue in its last quarter. This is yet another area where it exceeds expectations and in which rivals are unable to compete.

Overall I am expecting an excellent quarter for the company, as it has been working extremely hard to remind Wall Street that it has not relinquished its ability to innovate and can yet produce solid growth in the high single-digits and generate gross margin at historical ranges.

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