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Should You Buy Intel Now?

- By Sangara Narayanan

Intel Corp. (INTC) struggled for a brief period as the half-decade-long PC slowdown has dragged the company"s core sales down with it. But the company somehow managed to wriggle itself out by focusing on products that address the fast-growing cloud and internet of things segments. The stock price is now up more than 25% in the last 12 months, but the big question is: should you buy Intel now or wait for a pullback?


One of the major drags on Intel"s stock performance over the past couple of years has been its reliance on the client computing group (CCG), which still brings in the bulk of its revenues. Since this business addresses the PC segment, the market was not really happy that a major portion of sales growth is still coming from a segment under disruption.

For the third quarter, client computing posted flat growth. Despite that, Intel"s net revenue increased 2% as growth in the data center group (DCG), internet of things group (IoTG) and memory sales helped the top line expand.

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Intel"s futurue focus areas, data center and internet of things, are still slow but have picked up some speed. Internet of things reported $849 million in revenues for the third quarter, growing 23% compared to last year. In the first three quarters of the current fiscal, the segment reported $2.290 billion in revenues compared to $1.912 billion reported last year, a solid growth rate of 19.7%.

Intel"s internet of things business certainly looks promising for the long term. The company decided to spend $15 billion to buy Mobileye, an autonomous driving technology company. The buyout will help Intel position itself to sell products that address the fast growing self-driving car market.

Mobileye also has working relationships with 27 auto companies around the world, which will help the company jumpstart its connected devices product portfolio. In September, Intel also announced its partnership with Waymo, the Alphabet Inc. (GOOGL) spinoff for self-driving car technology.

In a press release , the company noted:


"Waymo"s newest vehicles, the self-driving Chrysler Pacifica hybrid minivans, feature Intel-based technologies for sensor processing, general compute and connectivity, enabling real-time decisions for full autonomy in city conditions."



It was a major win for Intel because Waymo is now the clear leader in the autonomous car market.

Intel also signed an agreement with BMW (BUD:BMW) and Fiat Chrysler Automobiles (FCAU) to build an autonomous driving platform for global deployment. The group plans to have deployed 40 autonomous test vehicles on the road by 2017.

The internet of things market is predicted to grow at double-digit rates through 2020, but Intel has taken a proactive step by buying Mobileye, emphasizing its commitment to push into an auto market that is undergoing massive disruption.

Intel should be able to keep its internet of things revenues growing at a decent pace over the next several years, and the multiple partnerships they have struck this year will certainly help it accomplish this goal.

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Despite the more than 25% increase in stock price, Intel is still trading around 15 times earnings and 13 times forward earnings, a clear indication the market is not expecting the company to grow quickly in the near term. This makes Intel a great buy at current levels.

Disclosure: I have no positions in the stock mentioned above and have no intention of initiating a position in the next 72 hours.

This article first appeared on GuruFocus.