Intel Stock: Why Intel Corporation (INTC) Stock Should Be On Your Buy List

  • Intel is an attractive dividend stock. Its strong competitive advantages and balance sheet protect it against downside risk.
  • I believe the Data center segment will return to robust growth rates. Cloud infrastructure segment is also not slowing down anytime soon.
  • Sentiment is at all time lows. Value buyers will enter in droves if the stock price drops much more.

Investing for income is a totally different kettle of fish compared to investing for capital gains. In fact, the former is probably better as one is not concerned about stock price movement which can be a relief in itself. The other advantage that income investing brings to the table is that one doesn't have to get caught up in the whole "get rich" mentality. Investing for income brings your focus right back to the present which is crucial. Hence, here's why income investors should consider Intel (NASDAQ:INTC) stock going by the present scenario.

Intel has really put its foot on the floor with respect to dividend increases since the turn of the century. In fact, the payout has increased from $0.02 to a present $0.26 and another hike is expected next quarter. The share price got smashed last month when the company announced weak guidance in the face of strong Q3 earnings. However, the stock bottomed along with the NASDAQ on the 4th of November and has been rallying steadily since then. We all know that hope springs eternally, but waiting for your "ship" to come in is usually Disneyland thinking. The most prudent way to get the maximum of an investment (for income) is to buy the underlying aggressively (through fresh capital or dividend reimbursements) on pullbacks. That time is now, in my view, at its present share price of around $35 a share for the following reasons.

Overvalued Compared To Recent Earnings Multiple Averages But Not So In Long Term

Currently, Intel's earnings multiple is 16.42 which is a full four points above its 5-year average, but practically in line with its 10-year average. This is really the crux of the issue with Intel as it is overvalued compared to its most recent years of annual earnings, but at least a fair value when taking more of a long-term view. The general consensus stock price target is around $40 a share, but some analysts believe Intel will actually under perform over the next few years. Dividend growth investors would always want to be buying as close to hard bottoms as possible to ensure maximum share purchases.

Low Debt, Strong Cash Flows & Rising Revenues Should Enable Intel Succeed In This Transition

The core issue for Intel is whether it can replace its PC derived income growth with growth from its Data center segment. Many tech companies like Intel are in a transition at present, but Intel's advantage here is that at least it is reporting top line growth unlike other tech companies such as International Business Machines (NYSE:IBM). Intel, in my opinion, will continue to grow meaningfully in telecom and the Cloud segments, but its most recent guidance probably points to declines in the Client Computing Group (CCG) next quarter. Weak PC demand is the cause for this. Furthermore, weak server demand is another issue in the Data center segment that has brought down expected growth rates in this segment to single figures for 2016. Nevertheless, Cloud sales to service providers are much more robust and grew by 32%, which resulted in the Data center division growing 10% year-over-year with $4.5 billion in revenue for the last quarter.

Also Read: AMD's Zen Architecture To Drive Substantial Growth In 2017: Advanced Micro Devices, Inc.

Projected Earnings Growth Trump The Bears Arguments In My View

This is essentially the bearish argument. Low PC demand, poor enterprise server sales and falling margins may not look good on the surface but there is more than what meets the eye here. Firstly, guidance on the margin drop is related to temporary ramp up in costs in the memory space. These costs should fall off in due time. Secondly, enterprise sales make up only about 40% of the data center group. Cloud sales are growing much faster. Moreover, Intel has little competition for its cloud offering, which is why I believe bearish analysts are underestimating how much the likes of Alphabet Inc-C (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) will grow their infrastructure going forward. Long-term earnings growth rate projection looks very attractive (see below). Personally, I believe the Data center segment will grow much quicker than what analysts believe which is why I believe now is the time to be scaling into this stock.



Also Read: Intel Corporation: This New Disruptive Tech Could Drive INTC Stock Higher



Source :

Analysts are divided on this stock, but I don't see much more downside. Why? Well, when you take into account its balance sheet and its high R&D budget, I believe the company will be able to maintain its pricing power over rivals. Remember, the Data center segment is where the margins are. I would take the guidance reduction (on the data center side) with a pinch of salt because, in my view, this segment in another 3 years will be producing the same revenues as the PC segment. The company should be announcing a dividend increase soon and sentiment is still on its knees. Use the pullback to get long INTC stock for income.

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Jack Foley Jack Foley   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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