Repeatedly I have stated investors with long-term holdings want a portion of their portfolio in Intel. It's a general purpose stock; it pays a dividend for yield seekers, it's high-tech for gadget lovers, and it faithfully executes quarter after quarter.
In other words, Intel is the Yellow Labrador Retriever in the stock market.
For some, owning Intel isn't as sexy as Twitter (TWTR) or Tesla (TSLA), but from my desk making money never goes out of style. Advanced Micro Devices, on the other hand, produces excellent products and depending on use and application, superior to the comparable Intel offering.
I have firsthand knowledge of the differences between Intel and AMD processors. I've sold thousands of them and dollar-for-dollar I know for most applications, AMD processors are a better value. But therein lies the problem and the difference between AMD the company and AMD the stock.
Intel enjoys greater pricing power. All else being equal, Intel processors carry a higher selling price. Intel chips are considered superior, and investors don't need to look further than the stock price to figure it out.
If you buy shares in Intel, you receive a 3% yield on your money. AMD doesn't pay a dividend. Intel is making new 52-week highs, and AMD's 2013 advance has stalled in 2014. I know there's a lot of attraction towards AMD due to its low share price but the price is what you pay, value is what you receive.
Does the above indicate AMD should be sold to buy Intel? Not exactly, in fact, I think an 80/20 holding is appropriate or 80% Intel and 20% AMD. AMD's progress in graphic processing units (GPU) is impressive. Apple (AAP)L announced the use of AMD's dual FirePro professional graphics solutions in its new Mac Pro.
Apple is such a large customer that it significantly moves the needle for AMD. Apple's confidence will undeniably influence other computer makers to consider AMD over Nvidia (NVDA) and Intel.
AMD's GPU success reportedly could increase its graphics chip market share to 30% by the end of this year. AMD faces intense competition from graphics producers NVIDIA and Intel. For AMD, exceeding 30% is anything but certain.
That said, Intel is ideally positioned to exploit the expected trends in processors. The ability to achieve Moore's law through transistor density is reaching natural limits with current technology due to electrons' ability to cross a conduit gap if paths have too close of proximity to each other. However, using multiple processors inside the same computer is one viable solution to increase computing power.
You've likely seen computer's advertisements with multiple cores. More processors within one device is only one way for Intel to continue driving revenue and profits. Another, even more exciting strategy is setting DRAM within the CPU instead of outside on the motherboard.
Traditionally, memory on the motherboard is a bottleneck for CPUs and GPUs. GPUs mitigated performance reductions through L1 and L2 memory cache. Other than low-end budget machines, GPUs use their own, high-performance graphics memory.
Intel has a superior solution that may change computer design and will lower operating costs. Instead of limiting to L1 and L2 cache on board, Intel is actively working on moving all or at least significantly more memory on-chip and as close to the processing cores as possible.
Moving memory on-chip potentially could massively increase revenue and profit per chip, while reducing the cost of a system for the consumer. With the memory on board, manufactures would require fewer inventory SKUs, lower assembly labor costs, higher performance at the same price, and build more stable systems requiring less testing.
The increase in revenue and profits by placing memory on-chip should result in greater margins through higher fab utilization rates. As Intel leverages memory on-board, one company investors may want to monitor is Micron (MU). As Intel, Qualcomm (QCOM) and/or AMD begin adding greater quantities of memory into their CPUs, demand for Micron memory may be negatively impacted.
Adding memory within the CPU package is a logical, profitable and desirable next step to increase computing performance. As a result, investors have a lot to look forward to. Intel trades at a modestly cheap 14.5 forward price-to-earning's multiple, compared to over 50 for AMD.
Because stocks never rise in a straight line and Intel reached a new 52 week high last week, I suggest entering a long position through options. By selling an August $31 put option, you reduce your total risk, and if the shares remain at the current price, your entry price is about $1 less than if you buy the stock outright as of this writing.
The August expiration date is less than 50 days away, and Intel needs to appreciate more than $1 higher before experiencing missed gains.
At the time of publication, Weinstein had no positions in securities mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates INTEL CORP as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate INTEL CORP (INTC) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to its closing price of one year ago, INTC's share price has jumped by 28.22%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, INTC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- Despite its growing revenue, the company underperformed as compared with the industry average of 2.8%. Since the same quarter one year prior, revenues slightly increased by 1.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- INTC's debt-to-equity ratio is very low at 0.23 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, INTC has a quick ratio of 1.68, which demonstrates the ability of the company to cover short-term liquidity needs.
- The gross profit margin for INTEL CORP is currently very high, coming in at 74.80%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 15.12% trails the industry average.
- You can view the full analysis from the report here: INTC Ratings Report