Intel Stock Looks Shaky in 2015 Despite Dividend Increase

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Intel Corporation (INTC) just held its annual investors meeting in Santa Clara, Calif., and used the occasion to announce a dividend increase and provide forward guidance.

intc stock IntelINTC stock will now pay 96 cents quarterly, a roughly 6% increase in the Intel dividend compared with last year and up about 57% from its dividend rate back in 2009.

And in regards to forward guidance, according to Intel stock holders should expect:

  • Intel revenue growth in “the mid-single digits”
  • Gross margin between 60% and 64% for INTC profits
  • Research, marketing and administrative spending of roughly $20 billion
  • Capital spending of $10 billion to $11 billion

On the surface, this seems like a pretty rosy scenario — especially when you couple that with the fact that INTC stock is up almost 40% year-to-date in 2014 and pushing up against levels not seen since the dot-com days.

But even with Intel stock at 14-year highs, investors should be wary of placing too much faith in in the semiconductor giant next year.

Intel Stock Isn’t Trustworthy

Admittedly, the short-term outlook for Intel stock seems to be quite strong. Intel earnings back in mid-October showed strong revenue growth and improvement driven by more than simply better-than-expected PC sales boosting demand.

Furthermore, InvestorPlace technical analyst Serge Berger pointed out that the charts are looking mighty good for Intel stock right now.

But bigger-picture, there are serious challenges ahead for INTC stock.

The biggest unknown includes plans to merge its currently separate mobile and PC units in 2015 as a way to place more brainpower behind its push into microprocessors for smartphones and tablets.

But many analysts have voiced concern that squashing these two groups together reduces visibility into how the company as a whole is performing. For instance, Intel could continue to lag in the mobile market and make up for it with PC chip sales … but without different line items, how would INTC stock holders know?

After all, INTC is a giant outside of mobile, with 80% of all PCs running its chips and about 98% of servers with Intel inside. It would be easy for dominance in this space to offset the secular decline of personal computers — and for its convention chip sales to mask continued problems in mobile when the two groups start reporting on the same line going forward.

Beyond that, consider that Morgan Stanley downgraded Intel stock after its latest earnings report, with fears of “limited upside” and worries about rising inventories. MS put a $30 target on Intel stock — and shares fell immediately after earnings in part because of this bearish assessment.

More recently, analysts at Bernstein followed up with a similar downgrade and a $30 target of their own just last week.

Clearly Wall Street doesn’t trust the tailwind in revenue to continue, and is skeptical of the new reporting going forward for Intel stock and its combined mobile and PC divisions.

The icing on the cake is that Intel is now sporting a forward price-to-earnings ratio of more than 15 — much more than other large-cap tech stocks like Cisco Systems, Inc. (CSCO) and Oracle Corporation (ORCL) that are both trading at 12 times forward earnings, and significantly higher than other chipmakers like Micron Technology, Inc. (MU) that sports a forward P/E of 8.

Those investors who believed in Intel stock a few years ago when it was beaten down have certainly been rewarded for their bargain buy in the chipmaker. However, it’s very hard to trust INTC stock at these levels and expect outperformance in 2015 given the new structure and the risk of a top after the run-up.

If you own Intel, I advise taking profits off the table.

And if you don’t own INTC stock, don’t buy until it’s back in the ballpark of $30, as many analysts expect it to be in the next 12 months.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/11/intel-stock-intc-dividend-increase/.

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