Intel Corporation (NASDAQ:INTC) is one of the least-loved tech stocks on Wall Street. Like Cisco Systems, Inc. (NASDAQ:CSCO) and Microsoft Corporation (NASDAQ:MSFT), investors like to call INTC stock “dead money” after low growth and underperformance for a decade or so.
But folks writing off the old guard of tech stocks may be missing a golden opportunity. Because as growth slows broadly across the S&P 500 and investors look to take cover in “risk off” stocks in 2016, a sleepy but stable name like Intel could be your best bet.
In fact, not only does INTC stock offer a nice 3% dividend and a bargain forward price-to-earnings ratio of about 13, Intel also may offer a bit of earnings flair amid what is otherwise looking like a pretty disappointing year for growthy tech stocks.
Here’s why Intel earnings may be better than you expect, and why INTC stock could have a pretty good 2016 amid an otherwise tumultuous market.
Intel Earnings Benefit from Low Bar
When leading semiconductor stock Intel reports its fourth-quarter numbers on Thursday, it is expected to show a profit of about 63 cents a share — down from 74 cents a year ago.
On the surface, that’s not good for Intel stock. But the details provide some pretty interesting signs of hope for investors.
Consider how last year, that 74 cents came amid a forecast of just 66 cents for Q4 that INTC beat big. Also consider that in each of the last two Intel earnings reports, the tech giant beat by a wide margin.
In fact, after Intel bottomed in August of last year, an earnings beat on both the top and bottom line in October helped (in part) propel the stock to an impressive 20%-plus surge over the last several months while the Nasdaq has only tacked on about 3% in the same period,
Yes, we are looking at a flat top line and a drop in year-over-year profits. But that low bar means Intel won’t have to show much to impress Wall Street and build on its recent momentum.
Longer Term Prospects of INTC Stock
Now, it’s unlikely we’ll see a big pop even if Intel earnings beat forecasts. That means this semiconductor company is not a potential swing trade around earnings like growthier tech stocks.
But given this history of low expectations and a juicy dividend — that 3% current yield is being paid out at just 40% of next year’s earnings — this is clearly a stock you want to hold long-term. And that’s where the story of Intel starts to look quite interesting.
While there is much hype about the “post-PC age” and mobile devices are indeed supplanting many laptops and home computers, it’s important to note that PCs haven’t gone extinct. In fact, after a more than 10% decline in PC shipments in 2015, IDC expects just a 3% decline in PC sales for 2016. That means the narrative of a stable top line will persist at the very least, but that Intel may even have a shot at growth if it claws a bit more market share or forecasts beat expectations.
Furthermore, data-center growth remains quite strong — and this arm of chip sales is a huge driver of Intel stock earnings going forward. According to the company, it expects server-related sales to grow 15% annually through 2019 thanks to the rise of cloud computing and the need for more sophisticated data centers at all manner of businesses.
This all adds up to a pretty good case for Intel right now as a “risk off” play in advance of its Q4 earnings in January.
The dividend is nice, the company has a history of stepping over a low bar each quarter and the long-term hopes for its cloud computing biz could give INTC a lift in the months and years to come.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks.Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
