Buy Intel Ahead of Earnings

NEW YORK (TheStreet) -- Semiconductor giant Intel will report second-quarter earnings on Wednesday, July 17. Although it's not ground-breaking news to suggest that the company has fallen out of favor with Wall Street, it still seems that many investors are discounting the progress that Intel has made in the realm of mobile.

Although Intel does rely on the PC market for a significant portion of its revenue, the company's mobile advancements, albeit modest, are a step in the right direction.

I'm not suggesting that rivals such as ARM Holdings and Qualcomm should start worrying about market share. But for investors with patience, Intel can still provide solid gains with each small step.

One of these small steps was taken recently when Samsung announced that it had chosen Intel's Clover Trail+ mobile chip processor to power a its Galaxy Tab 3, which is based on Google's Android platform. Although this would certainly be a great win for Intel, the news was dampened by new rumors that Apple had decided not to use Intel chips in new versions of its iPhones and iPads.

I won't discount that this would be a major blow to Intel, which is struggling to find its footing in the mobile market. But there are two frames of thought here. First, I believe the Street is still overstating Intel's reliance on the PC industry. Granted, this is an area where Intel owns a meaningful portion of market share. But the presumed "death of the PC" does not spell the death of Intel.

Second, investors are still discounting management's ability to adjust to the changing trend. Management has begun to reinvest in research and development, while laying down the foundation for the company's long term-success.

Accordingly, I believe that Intel has all of the makings of a successful turnaround story -- one that earned $2 billion in its most recent quarter (reported in April) -- meeting both its revenue and profit targets.

What's more, the company has begun to think differently, which means that investors must also adjust their views. Intel has begun to look for new revenue streams beyond its core competency. These include the home entertainment industry where the company has discussed the prospects of building a television. Say what you want about how competitive that space is. What is clear, though, is that management appreciates the new realities of "adapt of die."

Given these new ambitions, I believe it's premature to count Intel out. Along those lines, I still believe that Intel's true growth potential will reside in mobile. This is not to discredit management's goals in entertainment. But I don't believe that Intel's pedigree in home theater can rival what Apple and Google are able to do.

Plus, when you factor in Microsoft's Xbox One and Sony's existing dominance in entertainment, Intel's aspirations seem "reaching" -- to put it mildly. With that in mind, I expect management to maintain focus on growing product development and advancing better volumes in its chips business, which should spur Intel's profitability.

Though Qualcomm and ARM Holdings may be out of Intel's league at the moment. Intel still has distinct advantages over the likes of NVIDIA and Advanced Micro Devices . Plus, management has positioned Intel to capitalize on emerging markets. And I believe that this is where investors should begin to focus their attention.

The emerging markets are where most of the company's growth should be in the next few quarters. This is one of the main reasons that I'm bullish on Intel's core capabilities -- namely in areas like security and the cloud. What Intel needs is more time. The company will eventually recapture its magic and prove that is can increase its margins and outperform expectations.

In the meantime, from an investment perspective, I believe that the stock is trading for less than its fair market value, which I have estimated to be right around $32 per share. (Shares were changing hands Tuesday morning at $24.19.) For value investors with patience, the stock is a buy at this level ahead of earnings.

At the time of publication, the author was long AAPL.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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