Semiconductor chips are a strategic commodity.
For the past few years, people have been saying that Intel Corp. (INTC, Financial) is at a disadvantage because most of its fabs (fabrication plants) are in the U.S. Chips can be produced more cheaply in Asia. Based in Santa Clara, California, Intel is the largest U.S. chipmaker.
I think Intel’s U.S.-based factories are about to become an advantage. In the next few years, I think Congress is likely to take steps to encourage more chip production here in the U.S.
The shortage of chips needed to produce cars has focused public attention on the issue, even as U.S. relations with China have become frostier. China sits dangerously close to Taiwan, home of the chip world’s production powerhouse, Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial).
I look for Congress and the Biden administration to do nice things for Intel, directly or indirectly.
Perhaps some of these thoughts went through the mind of Patrick Gelsinger, the CEO of Intel, when he bought 5,600 Intel shares in February, spending about $248,000.
Gelsinger’s saga
Gelsinger has said that in 2010 he was pushed out of Intel, where he had served as chief technology officer. During his 11-year exile, he ran VMWare Inc. (VMW, Financial), a large software company based in Palo Alto, California. He returned to Intel as CEO in 2021.
Intel has struggled in the stock market. Its stock has appreciated only 45% in the past five years (including dividends), while the Standard & Poor’s 500 Total Return Index has returned 94%.
Back in the days when he was a senior vice president at Intel, Gelsinger was a frequent seller of Intel stock. He sold 121,500 shares during 2009, his last full year at the company.
Now he is a buyer, putting his money where his mouth is. In February he told investors, “The Intel turnaround train is leaving the station, and I hope you all get on board.”
Intel’s outlook
Personally, I like Intel shares (see disclosure at the end of this column). The stock sells for only nine times recent earnings, and 13 times the earnings that analysts project for the coming year. It’s a cheap stock in an expensive market.
Yes, Intel has lost ground to competing chip makers such as Nvidia Corp. (NVDA, Financial) and Advanced Micro Devices Inc. (AMD, Financial), which farm out their manufacturing to Asia.
But those stocks are expensive. AMD sells for 40 times recent earnings, Nvidia 57. Intel shares yield 3% in dividends, and the company has increased the dividend in 13 of the past 14 years. Finally, I believe Intel’s “outdated” practice of making chips in America will serve it well in the next three to five years.
Past record
This is the 61st column I’ve written about purchases and sales by corporate insiders, beginning in 1999. In that span, I’ve recommended 87 stocks based on insider buying.
The average 12-month return on my recommendations has been 11.1%, beating the Standard & Poor’s 500 Total Return Index by just over three percentage points.
For 26 stocks, I mentioned insider purchases but said I would avoid the shares. Those stocks have declined by an average of 25.7%, trailing the S&P 500 by more than 24 percentage points.
If I could stop there, you might think I was hot stuff, but there’s more to the record.
For 12 stocks, I mentioned insider buying, but took no stand (or made an ambiguous comment). Those stocks have returned 34.3%, clobbering the S&P by more than 16 points.
I discussed insider sales 52 times. Those stocks trailed the S&P by an average of 1.4 percentage points, but still showed a good profit, on average.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
A year ago, I recommended Intel on the basis of buys by Robert Swan, who preceded Gelsinger as CEO. That recommendation did badly, as Intel dropped 16% in a rising market.
Even worse was the performance of Quidel Corp. (QDEL, Financial), a medical testing company. Its shares collapsed 38%.
My only successful recommendation from March 2021 was my suggestion to avoid the shares of Facebook Inc., since renamed Meta Platforms Inc. (FB, Financial). CEO Mark Zuckerberg had been a steady seller to fund his charitable ventures.
I said that I thought Facebook (Meta) would lose market share in online advertising, and I believe it has. The stock fell 14% between March 8, 2021 and March 8, 2022.
John Dorfman is chairman of Dorfman Value Investments LLC in Boston, Massachusetts, and a syndicated columnist. He or his clients may own or trade securities discussed in this column. He can be reached at [email protected].
