“While these names are down noticeably in recent days, prompted by a noticeably weak August and punctuated by Intel’s recent pre-announcement our downgrade today reflects our checks in Asia that stoke our concerns that the intermediate term prospects for PC’s do not look optimistic. Robbed of catalysts, we see limited likelihood PC-related shares will appreciate meaningfully in coming months, despite valuations.”
It’s fitting this downgrade comes with the backdrop of the Apple (NASDAQ:AAPL) event and its big iPhone 5 reveal. This gadget-maker’s iconic products like the iPad and iPhone have been disrupting the entire tech and media sector for some time. In a post-PC age, Intel is having trouble adapting from a PC chip business to a 21st century semiconductor manufacturer.
But does that mean INTC is a bad stock?
Here are some things in Intel’s favor:
- Scale: Intel is the largest semiconductor manufacturer on the planet, with 15.9% market share in 2011. That reach is bigger than runner-up Samsung at 9.3% and No. 3 Texas Instruments (NASDAQ:TXN) at 4.5% combined.
- Strong Track Record: Yes, profits have slowed recently. But Intel is boasting 11 straight quarters of year-over-year revenue increases and 10 out of 11 increases in EPS (though admittedly momentum has waned in the last two quarters).
- Valuation: With the recent sell-off, the forward P/E is about 10. The stock is down over 5% year-to-date versus a nearly 20% rally for the Nasdaq. One can hardly argue that Intel hasn’t been punished yet — a lot of negativity is priced in.
- Dividend: After the sell-off, Intel has a nearly 3.9% dividend yield. In 2007, it paid just 11 cents quarterly but now pays 22.5 cents — with only a 33% payout ratio or so, meaning more increases could be coming soon.
- Cyclical Play: Consumer and business spending is the main force behind electronics sales, and a secular recovery could really boost all chip sales — and thus Intel. If you want to get in on the ground floor, you don’t want to wait until the gains have already come.
The downside risks are clear — that fewer PCs mean fewer chips mean lower profits. And the pain at Hewlett-Packard (NYSE:HPQ) proves out how long that downward spiral can last.
There may be pain in the short term for Intel, but savvy investors should consider getting ready to make a bargain buy if this sell-off continues for much longer.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in Apple.