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Omar Venerio
Omar Venerio
Articles (1747) 

Is Intel a Buy at These Depressed Prices?

Intel's latest price is close to the bottom of the range, down 25% from its high

August 31, 2015 | About:

Jean-Marie Eveillard is a value-oriented investor and runs First Eagle Investment (Trades, Portfolio) Management, LLC, a New York-based hedge fund, which focuses on value investing. So, let´s analyze his recently filled portfolio.

Over the past days hedge funds have been filing their form 13-F, which is a quarterly report of equity holdings filed by institutional investment managers with at least $100 million in equity assets under management, as required by the United States Securities and Exchange Commission (SEC).

First Eagle Investment (Trades, Portfolio) Management, LLC, disclosed an equity portfolio valued at some $41.96 billion as of the end of the second quarter of 2015. The equity portfolio is mainly invested in Technology (20%), Materials (17%) and Consumer Discretionary (15%) stocks.

So in this article, let´s concentrate on Eveillard´s latest 13F filing. Among the 10 largest holdings (which comprise 27.09% of the total portfolio value), I'll look into one of the principal positions.

Intel Corp. (NASDAQ:INTC) is Eveillard's tenth principal holding. The fund holds 2.06% of its portfolio in this $135.06 billion market cap company, with 28.48 million shares. The value of the stake amounts to $866.19 million.

Ken Fisher (Trades, Portfolio) also has an important position with 19.36 million shares valued at $588.76 million. In the March-June period, the stock lost 3.32%. So, what's going on at Intel that makes it so attractive for these gurus? Well, let´s concentrate in some in the next reasons.

Acquisition

The company agreed to buy Altera (ALTR) and expects that Altera's FPGA will provide options in the Data Center market, because they are not available with microprocessor server chips alone. “The acquisition will couple Intel’s leading-edge products and manufacturing process with Altera’s leading field-programmable gate array (FPGA) technology,” Intel said in the statement. “The combination is expected to enable new classes of products that meet customer needs in the data center and Internet of Things market segments.”

Good and bad signs

The asset growth is faster than its revenue growth rate over the last years, which means that Intel may be getting less efficient. Moreover, the company keeps issuing new debt. Over the past three years, it issued $5.9 billion of debt.

The return on equity is one reason to consider the stock for the long haul. The stock´s ROE of 20.57% quadruples the industry median. Further, its operating margin is growing and making it an attractive option for sure.

We can calculate operating margin as operating income divided by its revenue. The company's operating income for the three months ended in June was $2.896 billion and revenue for the three months ended in June was $13.195 billion. Therefore, the firm's operating margin for the quarter that ended in June was 21.95%.

Quarter Ended

Dec05

Dec06

Dec07

Dec08

Dec09

Dec10

Dec11

Dec12

Dec13

Dec-14

ROE (%)

31.14

15.97

21.43

23.82

16.26

35.73

32.37

27.44

23.32

27.47

From a valuation standpoint, trading at a 12.0 P/E, which stands at a discount, compared to the industry median that indicates that other companies operating in the same sub-industry are more richly valued. Further, it is close to 2-year low of 11.25. Competitors such Altera Corp. and Texas Instruments Inc. (NASDAQ:TXN) are expensive options. The following table compares the current valuations:

Ticker

Company

P/E Ratio

INTC

Intel

12.0

ALTR

Altera

37.86

TXN

Texas Instruments

17.02

Moreover, the P/B Ratio (=2.34) is close to 1-year low of 2.19 and the P/S Ratio (=2.55) is close to 1-year low of 2.38.

Intel stock price has been moving in a trading range of $24.87-$37.90 in the past 52 weeks. Its last price of $28.42 is close to the bottom of the range, and it is down 25% from its high. That creates an excellent opportunity to start an investment in Intel stock at this cheap price. The stock has surged by more than 52% since 2010.

According to Yahoo! (YHOO) Finance, the estimated one-year target share price is $33.02, so for an investor buying shares at current market price ($29.11), your return from price appreciation would be 13.4%. Also, you have to consider any cash flow received by the asset. So for holding the stock one year, you'll be paid a dividend of $0.96 at the end of the year. The dividend yield is at 3.41% and is ranked higher than 85% of the 605 companies in the Global Semiconductors industry.

Final comment

As outlined in the article, Intel has good signs that indicate the stock is driving on a path of growth. It is the largest semiconductor company and has reached a strong position by investing heavily in R&D.

In the second quarter, it seems that the sentiment on the stock was balanced. Jeff Auxier (Trades, Portfolio) Mario Gabelli (Trades, Portfolio), David Dreman (Trades, Portfolio), John Buckingham (Trades, Portfolio) and Ken Fisher (Trades, Portfolio) have taken long positions. On the other hand, Steven Romick (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Jim Simons (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio) sold out the stock. Less bearish were PRIMECAP Management (Trades, Portfolio), Bill Frels (Trades, Portfolio), Donald Yacktman (Trades, Portfolio), Chris Davis (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Manning & Napier Advisors, Inc, James Barrow (Trades, Portfolio), Chuck Royce (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Ray Dalio (Trades, Portfolio), John Hussman (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio).

Disclosure: Omar Venerio holds no position in any stocks mentioned

About the author:

Omar Venerio
Omar Venerio is a capital markets, derivatives, corporate finance and financial management professor and Area Head of Finance. He is passionate about the stock market and providing independent fundamental research and hedge fund and insider trading-focused investigation.

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