by Jeff Reeves | January 3, 2013 1:30 pm
[1]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[2]) in 2011[3] and a woefully underperforming investment in Alcoa (NYSE:AA[4]) for 2012[5] — 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[6]).
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[7]) and Advanced Micro Devices (NYSE:AMD[8]) to desktop and laptop giants Dell (NASDAQ:DELL[9]) and Hewlett-Packard (NYSE:HPQ[10]). 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[11]) 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[12]) is rumored to be considering Intel to make chips for its iPads[13], among other things, and there’s a lot of potential on Google (NASDAQ:GOOG[14]) 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[15], 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[19] is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.”[20] Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he owned a position in Apple and Intel.
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