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3 Reasons To Be Bullish On Intel Corporation Stock Over Other Chipmakers

Tom Taulli

After years being stuck in neutral, Intel Corporation (NASDAQ:INTC) is finally showing signs of life. Since August, INTC stock price has gone from $35 to $46.

Then again, there has been some positive Intel news lately. Just look at the earnings report. The company’s profits came to $1.01 per share and revenues hit $16.2 billion. The Street was looking for earnings of only 80 cents a share and revenues of $15.7 billion.

The outlook was also robust, with full-year earnings forecast at $3.25 per share and revenues of $62 billion. As for the analysts’ consensus, it was for $3.00 per share and revenues of $61.3 billion.

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Now it’s true that INTC is not without its issues. The company still must fight against tough rivals like NVIDIA Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NASDAQ:AMD). What’s more, the core PC business — which accounts for 55% of revenues — is in a secular decline.

Yet despite all this, INTC stock still looks like an attractive opportunity for investors. Here are three reasons why.

Intel Has Compelling Mission

Mission statements can often be a joke. Let’s face it, many companies only give lip service to them.

But this does not appear to be the case with INTC. The fact is that CEO Brian Krzanich has set forth a compelling mission — that is, for the company to be the driving force in the data revolution. And, more importantly, he has been taking steps to realize this.

There is, for example, the bold $15.3 billion acquisition of Mobileye, which is a leader in automotive technologies. The company’s chips have been implemented in over 15 million vehicles. Mobileye also has a partnership with BMW to launch self-driving cars by 2021.

But INTC’s internal R&D has also been prolific. Keep in mind that the company has seen growth in key areas like 5G, memory and the Internet of Things (IoT).

And yes, INTC is already seeing the results of these efforts. In the latest quarter, the revenues for the cloud business jumped 24% and the IoT segment saw a 23% increase.

INTC Has Powerful Competitive Advantages

While the growth profile for the PC market is lackluster, there are still some key benefits. Note that the business is a source of substantial cash flows, as INTC continues to realize efficiencies from the economies of scale (in the latest quarter, the segment posted an 8% increase in operating income). The result is that INTC has the resources to expand aggressively into other markets.

 

The company also has the advantage of the a global infrastructure. Keep in mind that INTC owns its own fabs, which allow for stronger integration, faster time-to-market and lower costs. These state-of-the art assets have also been proven to be critical for next generation technologies.The PC business is essentially a monopoly as INTC controls roughly 92% of the $31 billion market. For the most part, the company has significant customer lock-in because it would not make much sense to transition to another CPU architecture.

INTC Stock Has Reasonable Valuation and Nice Dividend

The valuation for INTC stock price is at reasonable levels. Consider that the forward price-to-earnings ratio is at 14x. By comparison, Texas Instruments Incorporated (NASDAQ:TXN) trades at 21.6x and AMD sports a multiple of 31x.

It is also important to note that INTC has an attractive dividend, which is at 2.33%.

And finally, the chip sector is undergoing a rethinking of valuations, especially in light of recent deal making in the sector. In fact, Broadcom Ltd‘s (NASDAQ:AVGO) blockbuster $103 billion offer for QUALCOMM, Inc. (NASDAQ:QCOM) is clear-cut indication that there is value in old-line operators.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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