There hasn’t been much to get investors excited about Intel (NASDAQ:INTC) recently. Semiconductor stocks have been one of the hottest sectors to buy. But while Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) have grabbed the headlines, Intel stock has been lagging behind.
Intel is already facing a loss of revenue as Apple (NASDAQ:AAPL) is going to bring its modem production in-house. And one of the latest disappointments for investors is the company’s announcement that its first 7nm chips will be delayed until 2022. This is all taking place as competitors are chipping away at Intel’s market share in its core markets.
But is Intel an example of a stock that’s beginning to look so bad that it starts to look good? I’m not sure I would say that about Intel stock, but if you’re willing to change your expectations, Intel may have something to offer you.
Is Intel Stock a Value Play?
One thing that Intel can hang its hat on is the way it takes care of its shareholders. The company’s return on equity (ROE) as of June 30 was 25.79%. Over the past 13 years, the company’s median ROE is 21.51%. Put into context, the industry median is 5.96%. This puts Intel ahead of 96% of the nearly 800 companies in its sector.
Part of that return on equity has gone to shareholders in the form of a dividend. Intel has paid a dividend every year since 1994. The dividend has not increased every year, but the company has issued a reliable dividend. And currently the dividend looks well supported based on cash flow (17.14%) and the company’s trailing twelve months (TTM) of earnings (27.10%).
The company’s dividend yield as of this writing is 2.41%. That’s nothing to ignore if you’re going to buy into Intel stock as a value play.
Is Value Enough?
If I was looking at Intel and thinking they were playing chess when others were playing checkers, maybe. But right now, it looks like Intel got caught sleeping as competitors swooped in and brought more innovative products to market. Now Intel is in catch-up mode.
Intel has had a good year. So far in 2020, the company has beat on the top and bottom lines in both quarters. And the previous quarter saw Intel post higher earnings and revenue on a year-over-year basis. But both numbers were lower from the prior quarter.
This is because investors were reacting negatively to Intel’s announcement that its 7nm chips would be delayed.
However, Matt McCall made a compelling argument against Intel as a value stock. McCall writes:
…we’re not snooping around the semiconductor space looking for yield and low valuations. Those merits have a place in one’s portfolio, but not when looking for stocks that should be enjoying the tailwinds of secular growth.
And I’m inclined to agree. 2020 was anticipated to be the year of the semiconductor. With 5G, new gaming consoles, the growth of data centers and other catalysts, it appeared that there would be several catalysts for growth.
But it seems like Intel is coming up short on all fronts. And as McCall reminds investors. Intel may appear to be cheap. But that’s comparing Intel stock to AMD and NVDA, both of which are in high demand by investors.
Dana Blankenhorn recently presented a rosier outlook for Intel stock. Blankenhorn points out that Intel is not taking its current situation lying down. It knows it has to become more competitive and is taking steps to ensure that happens.
But in the meantime, Intel is asking investors for an awful lot of patience as they try to become a more compelling growth stock. And it may happen. But you don’t have to chase the stock in the meantime.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.
