Intel Corp. (INTC, Financial) is trading at a significant discount to several value estimates and exhibits a solid dividend yield. It's a bit of a contrarian pick because, despite an encouraging plan for the future, Intel has struggled with many real issues in recent years. However, if all goes according to plan, we could see its stock gain traction after a more than 30% year-to-date drawdown. Although Intel faces supply-side risks and is exposed to a fading economy, it's likely that the stock market's already priced the faultlines into the share price.
Operational overview
Intel primarily competes in the CPU (central processing unit) space and holds a 63.5% market share. Although the CPU market isn't growing as rapidly as the GPU market with a CAGR of just 4% to 6%, it's still advancing at approximately twice the rate of U.S. GDP. And with Intel holding down a dominant market share, it's needless to say that the company has much profitability to tap into.
Source: Statista
Intel's revenue from personal computing has taken a hit recently, with its year-over-year segment revenue dropping by 13%. Nonetheless, Intel is a longer-term play than most other semiconductor stocks, and supply-chain glitches and consumer spending power will likely revert favorably in the coming years.
Furthermore, CPUs have broad applications in areas such as the artificial neural network (ANN) space. The ANNs, an industry growing at a CAGR of 21.5%, include time-series algorithms that utilize CPUs. Thus, with Intel's powerful market position, it's likely that it could tap into the market with relative ease.
Lastly, Intel exhibits a sizeable gross margin of 54.32% and an impressive return on invested capital of 8.67%, indicating that it has pricing power in the marketplace.
Dividends
Intel's market dominance and maturity have provided it with tremendous cash flows and net income. The company's operating cash flows totaled $30.53 billion on a trailing 12-month basis, while its net income over the same time frame was $24.82 billion. Thus, the company seems safe in its dividend of $0.37 per share, which gives a forward yield of 4.02%..
Considering the current market sentiment, dividend stocks aren't a bad option as they help soften the effects of possible stock price depreciation. Additionally, global inflation remains resilient, causing investors to favor high-dividend stocks.
Valuation
Intel is undervalued on a normalized basis, meaning that it's trading at a five-year relative valuation discount. The stock's price-earnings ratio is suppressed at a 34.82% normalized discount, and its price-sales ratio is also undervalued at a 39.13% normalized discount.
Concluding thoughts
Intel provides lucrative total return prospects in my opinion. The stock holds a solid position in the CPU market and could soon expand by penetrating the neural network market. Furthermore, Intel is undervalued on a relative basis and provides a substantial dividend yield, which could attract many investors.
