Intel Pays Big Dividends Now, and Shares Could Soar in 2013


InvestorPlace 10 Best Stocks for 2013Editor’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.

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Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he owned a position in Apple and Intel.

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