Some Reasons Why Intel Is a Solid Investment

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Sep 24, 2014

Intel (INTC, Financial) shareholders couldn't have asked for a better year. So far in 2014, Intel shares have gained around 35%, and if the company's recent second-quarter results are any indication, then the stock's rise is set to continue.

New products will drive growth

Intel, which is the world’s largest semiconductor maker, is moving aggressively to tap the PC rebound with its product innovation. For instance, its Bay Trail system-on-a-chip (SoC) has helped the company expand its addressable market. With these SoCs, Intel can deliver a much smaller and lower cost Atom-based core in its Pentium and Celeron brands. This will ultimately fuel its growth in devices carrying lower prices, without foregoing its margins. In addition, Intel struck up a strategic relationship with Rockchip, which will further expand its SoC business.

Intel also has various new products under its sleeve, such as the first 14-nanometer Broadwell Core M processor-based system and its next generation Haswell-based Xeon E5 platform, codenamed Grantley. Management is confident that these new products will boost its growth.

Going forward, Intel is focused on innovation and is working on two-in-one devices with lower price points. It has also received strong response for its new products in the data center, driven by Intel's strong product line-up and the build out of the cloud. In addition, as demand for cloud computing is increasing, its Internet of Things business is gaining traction.

Intel has invested aggressively in the data center, leading to new innovations that will increase the adoption of its solutions going forward.

Hence, Intel should continue gaining traction in the data center on the back of new products and growth in the end-market.

The situation is improving

Intel overwhelmed the Street with its second-quarter results, as its revenue and profit topped analysts' expectations. Moreover, its guidance for the third quarter is also better than consensus estimates. The revival in demand for PCs is expected to continue driving Intel's performance. According to a report by Bloomberg:

“The PC market has shown signs of improvement this year as corporate spending picked up and U.S. shipments returned to growth. Intel’s outlook indicates demand is starting to recover among consumers, who may be buying laptops and desktops again after years of opting for smartphones and tablets instead.“

Moreover, as Microsoft (MSFT, Financial) has ended its technical support to the Windows XP operating system, Intel's PC business has another catalyst to count upon. It is estimated that the installed PC base, which is at least four years old, is around 600 million units. With the end of Windows XP support, small and medium business enterprises will fuel demand for PC’s going forward. This is good news for the chip maker as it has been struggling in the consumer PC market, where tablets and smartphones have been dominant for the past couple of years.

Strong fundamentals

Apart from innovation and expansion, Intel is also determined to deliver value to its shareholders. Hence, it has increased its repurchase authorization by $20 billion, of which $4 billion worth of shares will be repurchased in the third quarter.

Intel also has an attractive trailing P/E of 18.64, compared to the industry P/E of 24.5. Its forward P/E is even more impressive at 15.2, reflecting that its earnings will improve. The stock is currently trading at its 52-week high, and looking at its performance and prospects, more upside cannot be ruled out. Therefore, keeping in mind the various facts and figures, Intel is still a solid investment option.