As a follow up to yesterday’s piece regarding solid, but unloved companies, today’s focus is Intel. I write this fully aware of the company’s recent announcement regarding softer than expected PC sales. As with Medtronic, I’m very partial to the big picture view. The first question I ask is – Will this company be larger ten years from now than today. In my opinion - yes. Will Intel return to peak margins - mostly likely not. But this doesn’t mean it can’t provide an adequate return on your investment.
Below is the previous ten year multiples for INTC:
P/E P/S P/B
04/10 | 14.10 | 3.06 | 3.28 | |
04/09 | 22.50 | 2.28 | 2.51 | |
04/08 | 27.20 | 4.18 | 4.82 | |
04/07 | 20.70 | 5.06 | 5.58 | |
04/06 | 26.10 | 5.40 | 6.17 | |
04/05 | 34.20 | 6.40 | 6.10 | |
04/04 | 30.20 | 6.81 | 6.72 | |
04/03 | 33.90 | 7.71 | 7.41 | |
04/02 | 56.60 | 8.37 | 8.28 | |
04/01 | 60.20 | 9.77 | 9.71 |
As we can see, the multiples have shrunk over the past decade. The stock currently yields over 3.5%, with a growth component. There is a large opportunity for management to raise the payout as the balance sheet is loaded with cash and has a huge free cash stream. Management has recently begun spending down that oversized cash hoard with the acquisition of Mcafee and Infineon’s wireless chip business. There is certainly debate about both merits of the acquisition and the price paid, but I don’t see it as a major negative. The market has definitely punished the stock.
Regardless of reasons to not like the company, I strongly believe that the significant risk has been taken out of the price. When INTC made is recent negative preannouncement, the stock actually closed up on the day. I don’t like to buy companies simply because they are cheap. There needs to be serious staying power with the business. I believe this to be the case with Intel.
Disclosure: none
