by Jeff Reeves | January 3, 2013 1:30 pm
Editor’s note: This column is part of our “Best Stocks for 2013″ series; stay tuned for more entrants today and tomorrow.
After two painful showings in this annual stock picking contest — a bottom-of-the-barrel call on Bank of America (NYSE:BAC) in 2011 and a woefully underperforming investment in Alcoa (NYSE:AA) for 2012 — I have decided to take a less speculative tack in 2013 by picking what I see as a stable and undervalued blue-chip instead of a long shot that I hope to be a highflier.
That pick is semiconductor giant Intel (NASDAQ:INTC).
Some of you may think that Intel is no less speculative — or foolish — than financial stocks were a few years ago or cyclical materials stocks were in 2012. And it’s true that the big-picture risks for Intel stock are clear — as they are for all PC-focused businesses, from other semiconductor plays like Marvell (NASDAQ:MRVL) and Advanced Micro Devices (NYSE:AMD) to desktop and laptop giants Dell (NASDAQ:DELL) and Hewlett-Packard (NYSE:HPQ). Simply put, in a post-PC age the growth just isn’t there for legacy operations.
But I remain convinced that Intel isn’t going anywhere. It remains the largest semiconductor manufacturer on the planet, with 15.9% market share in 2011 that was bigger than Nos. 2 and 3 combined — for the record, that’s Samsung at 9.3% and Texas Instruments (NASDAQ:TXN) at 4.5% — and boasts a very attractive yield north of about 4.4% right now.
Yes, the big questions about mobile are serious ones. But Intel continues to research new chips, and its long history of making some of the most energy-efficient processors in the industry mean that it has a lot of potential to get mobile right. Apple (NASDAQ:AAPL) is rumored to be considering Intel to make chips for its iPads, among other things, and there’s a lot of potential on Google (NASDAQ:GOOG) Android-powered devices, too.
I bet Intel will figure out mobile. And if no substantive headlines about a big supplier or gadget deal emerge to move the stock in 2013, there’s a pretty attractive underlying business anyway. Intel’s forward guidance has been disappointing, but at current estimates, the FY2013 earnings forecast is $2.03 a share. Divide its current pricing of around $20.50 by that EPS, and you get a forward P/E ratio of less than 10.
And revenues continue to grow nicely, with Intel seeing year-over-year improvement in 11 out of its past 12 quarterly reports. Sure, that one miss came in the most recent quarter … but shares are back to mid-2010 valuations. That seems a bit too pessimistic. Barring the bear-market crash of late 2008 and early 2009, the longest Intel has traded below $20 was a brief stretch of August to November in 2010 … and since then, both the top line and bottom line have improved considerably.
Top it off with $10.5 billion or so in cash and short-term investments and I think you have a compelling case for a stock that at worst has stabilized after a 15% drop in 2012 and at best could see big growth as it evolves into a mobile chip company in the next 12 months.
For the record, I have skin in the game on this. At the end of October, I added the semiconductor giant to my personal portfolio at $21.50. And when it fell to $20.50 recently I doubled down — giving me a personal cost basis of about $21 a share with a yield north of 4%. I plan on hanging on to this company for a long time because of that attractive yield, and the hopes of big growth and continued increases in the payout.
Here’s hoping that wasn’t throwing good money after bad.
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 owned a position in Apple and Intel.
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