NEW YORK (Best Credit) -- Over the last year, Intel (INTC - Get Report) has shown some impressive rallies, rebounding nicely from its sub-$24 lows in January to its recent peaks in the $35 range. Shares currently trade around $33 and are up nearly 27% for the year to date.

Given the overall strength of the personal computer industry, moves like these have been met with some degree of skepticism by some sections of the analyst community.  But relative to its competition, Intel still has a firm hold on its position as the world's leading semiconductor producer and this was largely validated by the positive earnings reports released last month.  That's one of the reasons I think the stock could be a buying opportunity now.


Courtesy of CornerTrader

With the stock trading at such elevated levels, it should be remembered that near-term challenges clearly exist for those with long positions and there are still questions going forward about whether or not the company can continue expanding at its current rate.  But a recent manufacturing agreement with Panasonic and strong evidence of expansion in developing markets strengthens the case for the positive outlook.

Prospects for Continued Strength

Intel has become the brand to beat in a wide variety of sectors within the industry.  Intel continues to place most of its focus on designing and  manufacturing computer components (and related products), with more and more attention being placed on the development and designing of platforms in the smartphone market segment.  Key competitors include Advanced Micro Devices (AMD - Get Report) and Qualcomm (QCOM - Get Report), which have also shown some positive fundamental signals in recent quarters but have failed to generate rallies like the one seen in Intel, whose earnings are detailed in the chart below.

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Intel has also benefited from its dedication to elevated R&D expenditures (20.2% of total sales in  2013), which aids the company in meeting its rigorous production schedules.  Intel introduces new processor technology during odd years and new architecture directions during even years.  Intel's ability to meet these timelines create the framework for enhanced competitive advantage going forward.  

Other positive factors include Intel's rising liquidity levels (still below the industry average, however) and its stronger revenue outlook as it stands supported with its new deal to produce for audiovisual devices from Panasonic.  Additionally, Intel has announced its plans to distribute more cash to shareholders in the form of share repurchases -- all factors that suggest dips in the stock will remain limited even as we trade at elevated levels.

By most accounts, Intel's reported second-quarter earnings surpassed initial expectations as the company continues its expansion in new markets.   Continued progress in emerging economies could be impacted by bullish trends in the U.S. dollar.  According to ForexAbode, recent breaks in the dollar in moving past the 1.35 level against the euro mark significant changes in the broader trend in the greenback and this could be a supportive area for this part of the company's balance sheet in the final quarters of this year.

Areas to Watch

To be sure, there are potential negatives for the the company. ARM (ARMH), which makes intellectual property that other chip makers use, has made great strides in smartphone tablet markets that have been helped by relationships with Apple (AAPL).

More broadly, troubles within the PC industry as a whole will mean that Intel will be forced to diverge more heavily into smaller devices and other new products.  Earnings per share are relatively low when compared to some of its competitors, and return on assets over the last three years decreased significantly.  Numbers for 2013 came in at 10.42% in 2013, important because the industry average is comfortably higher at 12.53%.

These negatives come as the stock has made a significant run over the last year.  So while they are unlikely to change the trajectory of the stock as a whole, it does create a scenario where buying on dips could occur before the end of the year.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

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 A. TheStreet Ratings Team has this to say about their recommendation:

"We rate INTEL CORP (INTC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and reasonable valuation levels. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Semiconductors & Semiconductor Equipment industry average. The net income increased by 39.8% when compared to the same quarter one year prior, rising from $2,000.00 million to $2,796.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.4%. Since the same quarter one year prior, revenues slightly increased by 8.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although INTC's debt-to-equity ratio of 0.22 is very low, it is currently higher than that of the industry average. To add to this, INTC has a quick ratio of 1.75, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Powered by its strong earnings growth of 41.02% and other important driving factors, this stock has surged by 45.23% over the past year, outperforming the rise in the S&P 500 Index during the same period. 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.