Thursday, 5 April 2012

INTC - undervalued quality tech

Intel is without question one of the most important tech stocks out there. The PC from which I'm typing (yeah, I'm no fan of Macs), runs on multiple Intel made components. Intel is everywhere! Intel is one of the dow'30 constituents, and surely the best tech stock of the dow.!

The amazing thing about Intel is that its cheap. Speaking as someone obsessed with 'fair value', cheap is a word I don't throw around much. Those who know me, would probably agree I generally suggest 'divide most stocks by 4/5, or even 10' to get the underlying fair value.

However, despite what has been a very consistent rally, INTC is still cheap, even if you ignore the generally much higher valuations of the main market.

See key stats:

First, the most important - and bizarre aspect, is that the forward PE is still only 11. That is less than half of the SP'500 average. Second, check out Intel's profit margin, which is a very impressive 24% net. Cash is 14bn, whilst debt is 7bn, so rising interest rates in the next few years should not be a problem. Finally, note that INTC pays a dividend, with a yield of 3%. That's better than many bonds!

Intel, daily

Clearly, INTC is reacting to the recent minor sell off. We could certainly fall all the way to $26, but I'd be really surprised at anything lower than that. Trend remains very strong, and its almost a surprise to be reminded that Intel was trading at just $19 as recently as last September.

Intel, weekly, 6yr historic

The collapse wave low of $11 was indeed one of the greatest buys of the current primary up cycle. Intel is now up almost 200% in just over 3 years, whilst paying a fair dividend, and having good solid long term prospects.

How high can it go?

My near term - June/July outlook is for Sp'1550. I'd guess that equates to around $33/35 for Intel - assuming earnings come in okay. Even $35 implies a PE of just 15 or so. Compared to a lot of the trash out there - with crazy PEs of 35/40 (and those same stocks usually pay NO dividend!), Intel is

I'll certainly refer back to this tech giant in the coming months, not least if the mid 30s target is reached.