They say timing is everything. If you bought Intel (NASDAQ:INTC) stock in mid-April, you’re sitting on a paper loss of more than 20%. That’s never a good thing.
Interestingly, INTC stock has entered value territory once more: it’s now trading at the same level it did last October, and December 2017 before that.
I wrote an article on the latter timeframe, openly wondering if the Intel stock price could hit $100. Eighteen months later, I could ask the same thing. Here are my updated views on getting to triple digits.
Does Intel Stock Have a Shot?
Remarkably, nowhere in my discussion from 18 months ago was Advanced Micro Devices (NASDAQ:AMD). Boy, have times changed. AMD is now the talk of the town, providing a serious competitive threat to Intel stock.
Worse still, since December 19, 2017, AMD stock is up 169% compared to a 2% loss for Intel.
And if that’s not bad enough, Intel is now saying that its next significant renaissance in terms of profits won’t be until 2023. In the meantime, stakeholders in INTC stock can expect a very bumpy ride. BMO Capital Markets analyst Ambrish Srivastava wrote on a May 11 note to clients after Intel’s Investor Day:
“AMD is having an impact on the business, and it has barely begun shipping its server products, and will likely have a bigger impact than clearly we thought on Intel’s margin structure – and likely what Intel thought as well.”
Not only did the analyst have doubts about whether Intel was doing nearly enough to contain AMD, but he also lowered his rating on INTC stock to “market perform” from “outperform.” Srivastava also cut the target price by 26% from $68 to $50.
Other analysts have been hesitant to recommend Intel stock, including Bernstein’s Stacy Rasgon. She believes Intel’s growth plan will probably work, but not for several years. In the meantime, Rasgon’s got an “underperform” rating on INTC and a 12-month price target of $42.
Clearly, the analysts have little faith that Intel stock currently has enough positive catalysts to drive it higher. Although $50 might be reachable by the end of the year, $100 is not looking like it’s in the cards. Speculators may have to wait at least until 2021 or later once its gross margins bottom.
Until then, analysts believe INTC stock will incur frequent volatility.
Should You Buy INTC Stock?
I like what my Investorplace colleague James Brumley had to say about Intel stock recently.
“Investors may want to take a closer, thoughtful look at the three-year roadmap Intel laid out earlier this month, though,” Brumley wrote May 30. “Adhering to its plan will be challenging to be sure, but it’s not out of reach. It could even prove catalytic. After all, INTC stock is only priced 10 times its trailing earnings, and less than 10 times its projected income.”
A great metric for finding value stocks is free cash flow yield, which is the amount of free cash flow generated by a company divided by its enterprise value. In Intel’s case, it had $14.3 billion in free cash flow in fiscal 2018. Based on an enterprise value of $216 billion, Intel stock has an FCF yield of around 6.7% at the moment.
Value investors tend to look at securities with FCF yields of 8% or higher. Therefore, INTC hasn’t quite reached value territory, but it’s steadily getting closer.
However, as Brumley pointed out, Intel’s Mobileye acquisition gives it a huge leg up in the autonomous-driving market where the company has a 70% market share. With revenues growing by 38% a quarter, it’s becoming a more critical piece of Intel with every passing day.
Intel has enough good stuff going on that it’s unlikely to fall into the $30s in the next few months. Thus, if you’re prepared to hold Intel until 2023, I wouldn’t have a problem buying its stock in the mid-$40s.
But if you’re not prepared to hold for the next five years, I’d wait for it to fall into the $30s before buying.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.