Intel (NASDAQ:INTC) looked around the world for its next CEO and settled for the quiet man in its own backyard. The company known as “Chipzilla” earned $5.2 billion, $1.12 per share, on revenue of $18.7 billion during the fourth quarter, all without a real CEO. Meanwhile, INTC stock lost 10.3% of its value — versus a 5.34% decline in the Nasdaq Composite index — since the June resignation of CEO Brian Krzanich.
After months of speculation around names like Advanced Micro Devices (NASDAQ:AMD) CEO Lisa Su and former Alphabet (NASDAQ:GOOGL) cloud chief Diane Bryant, Intel has settled on the boring insider. The reaction of traders was a giant “meh,” as the shares fell 2.4%
Under Swan, Intel has glided carefully forward, a big ship on a calm sea, slowly becoming a great bargain. The shares traded on yesterday at just over 10 times earnings, with a dividend that yields more than 2.7%, and buying interest among analysts was drying up.
If you believe in buying when they scream sell and selling when they scream buy, it’s time to buy.
Intel is two companies, a foundry and a design shop. Neither is a top performer.
Intel also designs chips for most major chip niches. It’s behind AMD in microprocessors, behind Micron Electronics (NASDAQ:MU) in memory, behind Nvidia (NASDAQ:NVDA) in graphics, and behind Qualcomm (NASDAQ:QCOM) in communications. It’s a huge “addressable market” as Swan notes. Intel doesn’t have to win the market to win sales.
Wherever analysts look they see Intel as second-rate. Yet Intel keeps moving forward, growing at 9% per year. Swan’s biggest decision so far has been to invest more in Israel, with $11 billion committed to manufacturing there and a $6 billion bid for Mellanox Technologies (NASDAQ:MLNX), which makes chips for data centers.
Cloud data centers are why Intel has been able to get away with mediocrity. Clouds don’t need the latest chips, they need chips that are good enough and as cheap as possible. It’s an area where Intel’s mass production still offers leadership, and it’s an area that’s still growing.
Which Way Swan?
Swan has executive experience at General Electric (NYSE:GE), at Northrup Grumman (NYSE:NOC), at eBay (NASDAQ:EBAY), and he even led Webvan as that grocery delivery service went under after the dot-com bubble popped. He kept falling up because of his reputation as a great numbers man, and a consensus builder.
Swan now faces the hard decisions about what to do concerning Intel’s internal contradictions and market problems. He is unlikely to breakup the company, as I have suggested off-and-on for six years. He is most likely to seek consensus from his managers, and to follow whatever low-risk growth path his numbers see as indicated.
Even without a grand strategy, Intel stock is super-cheap right now. The company is highly profitable, it’s doing $71 billion of business each year with an operating margin over 30%, and the market cap is under three times sales at $216 billion.
Bottom Line on INTC Stock
Right now, Intel stock buyers can get a dividend equivalent to a 10-year government bond. The company is cheap and financially strong. There’s a floor called results keeping INTC stock out of the pre-2018 trading range of the mid-30s.
Minimal risk, maximum chance of profit. That’s how I speculate.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.