Michael Price's Principal Holding Intel Corp. Has Upside Potential

Michael Price (Trades, Portfolio) runs MFP Investors, a New York-based hedge fund, which focuses on value investing.Â

MFP Investors disclosed an equity portfolio valued at $755.46 million as of the end of the first quarter of 2015. The equity portfolio is mainly invested in Finance (32%), Health Care (15%) and Technology (15%) stocks.

Among the 10 largest holdings from Price’s equity portfolio (which comprises 43.47% of the total portfolio value), I'll look into his largest position.

Principal Holding

Intel Corp. (INTC, Financial) is Mr. Price´s principal holding. MPF consists of 7.65% of his portfolio at 1.85 million shares. The value of the stake amounts to $57.85 million. The principal shareholder is Jean-Marie Eveillard, with 28.84 million shares, valued at $901.95 million, held as of the end of the Q1 2015. Ken Fisher (Trades, Portfolio), has also an important position with 19.16 million shares valued at $599.24 million. In the January-March period, the stock lost 13.83%. So, what's going on at Intel that makes it so attractive for these gurus?Â

Quantitative Reasons

Return on equity is another key reason to considering Intel as an investment choice. The stock's ROE of 20.70% quadruples the industry median. This, coupled with revenue and operating margins growth, make it an attractive option.

We can calculate operating margin as operating income divided by its revenue. Taking the company's operating income for the three months ended in March and its revenue for the same period, Intel's operating margin for the quarter that ended in March was 20.46% ($2.615 / $12.781). In the next table we can appreciate the margin expansion which is a sign of strength within the company.

However, gross margin stands at 60.5% with no trend in the past years, but greater than the industry median.

Some of its major competitors include Altera Corp (ALTR, Financial) and Texas Instruments Inc. (TXN, Financial). The following table compares the current valuations:

Stock Price Evolution

Intel's stock price has been moving in a trading range of $29.31-$37.90 in the past 52 weeks. Its last price of $31.80 is almost at the bottom of the range, and it is down 16% from its high. In my opinion, that creates an excellent opportunity to start an investment in Intel stock at this cheap price. The stock has surged by more than 50% since 2012. According to Yahoo! Finance, the estimated one-year target share price is $34.64, so if you buy shares at current market price ($31.8), your return from price appreciation would be 8.9%. In addition, you have to consider any cash flow received by the asset. If you hold the stock for one year, you'll be paid a dividend of $0.96 at the end of the year. If we divide this number by current price per share, we obtain the dividend yield, which is the other component of the return on an investment for a stock, and in this case is 3.1%. The total expected return for investing in Intel will be 12%, which we believe it is quite attractive. It is important to mention that Intel´s dividend yield is close to a one-year high. During the past 13 years, the highest ratio was 2.23%, the lowest was 1.24% and the median was 2.07%.

Principal Risks

Among the main risk factors we can highlight a greater competition from Advanced Micro Devices (AMD, Financial). It is fair to say that in recent years, Intel has been able to win market share from the former. Other factor that could affect negatively is a weak growth in emerging markets.

Final Comment

As outlined in the article, Intel has good signs and still plenty of room to grow. Someone who seems to think the same is Jim Simons (Trades, Portfolio). He significantly upped his stake. After an increase of 2681%, he reaches a stake of 6.87 million shares valued at $206.56 million.

Disclosure: Omar Venerio holds no position in any stocks mentioned.