The market is currently in a tailspin as the coronavirus from China continues to spread across the globe. While many believe we’re not at the bottom quite yet, it’s useful to start making a short list of stocks to snap up at a discount once the dust settles. Intel (NASDAQ:INTC) should absolutely be on that list. Intel stock price has fallen a whopping 16% over the past week, and the shares are likely to continue to decline as long as coronavirus fears weigh on the market.
The Turnaround Story of Intel Stock
But Intel is a solid pick, both as an income stock and a growth play. Right now, coronavirus’ impact on the global economy is unknown, but encouraging data from China showing that the number of new cases is dropping suggests its spread can be contained. Of course, semiconductor stocks like Intel are going to feel the pain from supply chain disruptions, but that pain is likely to be temporary.
Intel’s transformation from an antiquated PC business to a far more diversified organization is finally complete. The firm has started developing products for the Internet of Things and data centers. As 5G rolls out, demand for those products is increasing meaningfully.
What makes Intel so appealing in the semiconductor space is its value potential. While Intel’s valuation has dropped partly due to coronavirus fears, the firm is still trading at a much lower multiple than its peers Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA). Intel traders at 12 times analysts’ average 2020 earnings per share estimate, compared to AMD’s 30 times and Nvidia’s 29 times.
It’s worth noting, though, that there’s a reason investors are willing to pay more for AMD and Nvidia. AMD has been grabbing market share and Nvidia has also become a fierce competitor. However, that doesn’t mean Intel is out of the game.
Intel Bites Back on Price
Quite the opposite, in fact. While it’s true that AMD was able to beat Intel on speed, Intel’s size and scope mean the firm can beat AMD on price. This week, Intel’s new server chips hits the shelves, offering customers deep discounts of up to 60%. The Xeon Scalable processors weren’t the firm’s only new offerings, either. The firm also doubled down on its 5G bets with a new line of chips designed to support network infrastructure.
The chip space is rife with competition, but Intel is leveraging its size to get a leg up on its competitors— a smart move that smaller rivals like AMD will struggle to replicate.
Plus, management has proven itself to be savvy in times of crisis. As Morningstar analyst Abhinav Davuluri put it, “Intel has been ably navigating the headwinds, via concerted efforts to rein in non-essential spending while investing in critical process and design technologies (10- and 7-nm, 5G, Artificial Intelligence, and automotive).”
Davuluri believes that the fair value of Intel stock is $70, about 20% above the stock’s current price.
On top of that, Intel’s 2.35% divided yield is one of the best in the industry. With a payout ratio of just 26%, investors can trust that the dividend isn’t going anywhere even as the market tumbles.
Coronavirus Is Still a Factor
But before you get carried away with Intel stock’s value, it’s worth noting that coronavirus is far from finished ravaging the stock market. As Credit Suisse analysts put it, there are “still more coronavirus questions than answers.” But the firm is still bullish on the sector overall saying, “as the world transitions from just creating data to actually analyzing data – the latter is significantly more compute intensive.”
However, Credit Suisse also cautioned that it’s unclear when the market will fully absorb the coronavirus shock.
To be sure, it’s impossible to predict where the bottom is. It could be when, or if, a vaccine is created. It could also be months from now when the virus has been largely contained.
Now probably isn’t the best time to jump into anything, as there’s likely more pain ahead. However, a sell off is a terrible thing to waste, especially after the bull market we’ve been riding over the past decade. So while I wouldn’t rush out to buy Intel stock tomorrow, I’d definitely have it on your shortlist for when the dust settles.
As of this writing Laura Hoy was long INTC. Laura Hoy has a Finance degree from Duquesne University and has been writing about financial markets for the past 8 years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.