Intel Corporation (NASDAQ:INTC) is on a hot streak. INTC stock has already hit fresh 16-year highs. The stock appears set for a massive technical breakout, as shares are on the verge of topping the key $40 technical level. With the market as a whole moving higher as well, signs point toward INTC stock making a major move.
But not everyone is so optimistic for Intel stock. What’s keeping people from getting more hyped up about the Intel story? Stronger than usual in the core PC business is a definite issue. And the company remains perceived as stodgy and isn’t getting much credit from bank analysts at the moment. Let’s take a closer look.
INTC Stock Cons
AMD Is Catching Up: For years, Intel has smothered its competition in its all-important PC chip market. From 2006 through last year, Advanced Micro Devices, Inc. (NASDAQ:AMD) steadily lost ground against Intel. Back then, AMD commanded more than 40% of the market. Last year, this dipped to below 20%.
However, AMD is back with a vengeance. The launch of the new Ryzen chips has put AMD back in its most competitive position in years. Intel’s market share is dipping, and some critics suggest Intel’s latest offerings don’t match up that well with AMD. This has led to a revival in AMD stock, which has gone up hundreds of percent in recent quarters, while INTC stock comparatively lags.
Intel Isn’t Exciting: Intel doesn’t get many investors excited. It’s been a long-term “dead money” stock that has still failed to reclaim its highs from the 2000 tech bubble days. People think of Intel has just a commodity chip producer primarily for PCs, a market that is flat or shrinking slightly.
Even though Intel is doing tremendously great stuff, most people just don’t think of it in the same way they do younger tech firms. Yes, Intel is a serious competitor to NVIDIA Corporation (NASDAQ:NVDA) in self-driving, but for now NVDA stock skyrockets while Intel only slowly ascends. Intel will need to shake off its frumpy image before investors will bid it up to fair value.
Wall Street Is Skeptical: The Street isn’t real excited about INTC stock. In fact, they’re downright sober in analyzing the firm’s prospects. Despite the surging semiconductor sector and huge price targets for competitors, Intel isn’t getting much love.
According to the Nasdaq website, analysts have price targets ranging from $30 to $46, with a consensus of $43. That consensus estimate is just 7% upside, and 46 is hardly ambitious as the single highest estimate on the street. And that $30 price target represents 25% downside off today’s price. Now this could work to the Intel stock price’s favor, as analysts may upgrade the firm later. But for now, institutional money isn’t likely to flood into INTC stock given the subdued analyst opinions.
INTC Stock Pros
Cheap Stock: INTC stock is currently selling at just 15x trailing and 13x forward earnings. That’s quite a discount from the S&P 500 as a whole or tech stocks in particular. Even other stodgier semiconductor companies such as Texas Instruments Incorporated (NASDAQ:TXN) are trading up at 23x earnings, while high-fliers like NVIDIA and AMD trade at massive earnings ratios or don’t even earn profits.
This cheap PE ratio isn’t really Intel’s fault though. Analysts expect earnings to rise from 2.61/share last year to 3.09 this year. And beyond that, analysts expect 9% annualized earnings growth over the next five years. Those numbers aren’t huge, but Intel already earns $13 billion a year in net come. Near-double digit growth off that base is impressive.
Underrated Dividend Play: INTC stock pays a 2.7% dividend. That’s among the highest for the large tech companies. Yes, there are some that pay close to 4%, such as QUALCOMM, Inc. (NASDAQ:QCOM) and International Business Machines, Corp. (NYSE:IBM). However those companies have existential problems, such as massive patent headaches or 5+ years of uninterrupted revenue declines.
Intel, by contrast, has plenty of earnings muscle to keep growing its dividend. Intel has raised its dividend from 82 cents a year to $1.09 over the past five years. And with its payout ratio under 40%, there should be plenty more years of growth like that ahead.
Huge Research Budget: In a battle of David and Goliath, generally it is best to take the favorite. People love comeback stories and thus AMD has gotten lavish attention recently. But it’s worth remembering that Intel spends $13 billion a year on R&D a year, compared to just $1 billion at AMD.
Not only is Intel likely to pull ahead of AMD’s chips again, it has plenty of other irons in the fire. It stands to make a ton of new sales as 5G rollout facilitates a massive push toward Internet of Things connected household items. And the Mobileye purchase is just part of Intel’s increasingly promising self-driving vehicle platform.
I’m not usually one for buying stocks at 52-week highs. I like discounts as much as the next guy. But with INTC stock, I broke my own rule and added to my position earlier this month. The stock has broken long-term resistance and everything is pointing up technically.
Combine with a strong fundamental backdrop and an underrated dividend, and this is a prime choice for investors seeking both growth and income. It’s not the flashiest of stocks, and it isn’t getting much love from Wall Street at the moment. But the stock is still cheap enough that this headwinds won’t matter for too long.
At the time of this writing, the author owned INTC stock, TXN stock, QCOM stock, and IBM stock. You can reach him on Twitter at @irbezek.