The 2010s have turned into a decade that Intel (NASDAQ:INTC) would rather forget. The decline of PCs hit IMTC stock and its PC-driven peers. However, unlike Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA), and AMD (NASDAQ:AMD), Intel has so far failed to completely redefine itself.
However, the low valuation of INTC stock could attract more value investors. Moreover, its management team has stabilized and has earned the confidence of stock analysts. INTC is well-positioned for a comeback, but short-term factors will delay any immediate rallies by INTC stock.
INTC Is Still Trying to Recover
Intel allowed its peers to not only catch up with its technology but surpass it. Moreover, scandals among Intel’s top executives and the discovery of security flaws in its products also weighed on INTC stock. Now the company that was the world’s largest semiconductor firm has become the underdog.
The forward price-earnings (P/E) ratio of INTC stock shows this deterioration. Intel’s forward P/E multiple still stands at just over 12. That is quite a shift for a company that maintained 30-plus P/E ratios in past decades. Moreover, its top peers all trade at significantly higher valuations, after previously dropping to similar levels as INTC.
So, when will Intel stock rebound, assuming that it will eventually do so? Some analysts seem to believe that INTC will climb soon.
Morgan Stanley predicted “a much tighter level of coordination” between Intel stock and its peers. Nomura believes Intel has the “right priorities.” Both have set a price target of $65 per share, about 11% above the current INTC stock price of around $58 per share.
Intel has also followed Microsoft and Apple (NASDAQ:AAPL) by increasing its dividend annually. INTC has now logged four straight years of annual payout increases. With a yield of just under 2.2%, Intel stock is not far above the average of the S&P 500. However, the dividend provides an added incentive for value investors to buy INTC.
As I outlined in a previous article, I see an opportunity for Intel stock to surge as individuals and businesses begin to adopt 5G technology. Such a turnaround would not only bring investors back to INTC, but it would also drive the multiple expansion that has benefited Intel’s competitors in recent years.
INTC May Struggle for Now
However,I feel less bullish about the shorter-term outlook of INTC. Although Its multiple seems low, its profits look poised to grow extremely slowly. On average, analysts forecast earnings increases of 0.7% this year and 1.5% next year for INTC. Given that abysmal bottom-line growth, the stock’s forward P/E of 12 actually looks high.
Moreover, Intel trades at about the same level at which it peaked in April before dropping by almost 25% over the next six weeks. While I think Intel stock will eventually ruse above that level, I do not see any catalysts that will push it above that point in the near-term. Traders should also note that over the last year, AMD stock faced a similar problem overcoming the $34 level before finally breaking through it earlier this month.
Given this situation,, I would refrain from buying INTC stock for now.
Final Thoughts on Intel Stock
Intel looks poised to eventually make a comeback. It has a plan to narrow its gap with AMD in the PC and data-center-chip spaces. Also, as I have stated in previous articles, the advent of 5G may allow Intel to finally win back the confidence of investors.
However, the stock’s short-term path remains uncertain. Intel is still well behind a rival it had once taken for granted, AMD. Moreover, analysts expect Intel to generate only negligible profit growth over the next year. Furthermore, INTC has returned to its 52-week high, but it seems to lack near-term catalysts that can propel it higher.
The past few years have taken Intel down a dark path. With its turnaround plan and 5G technology, the light at the end of the tunnel may have finally appeared. However, until that potential translates into profit growth, do not expect Intel stock to reap any benefits from it.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.