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Is Intel Corporation a Buy?

Anders Bylund, The Motley Fool

Semiconductor giant Intel (NASDAQ: INTC) has put its shareholders on a roller coaster in recent months. The stock posted a 58% year-over-year gain in early June, then headed down a steep hill to post a 19% drop in 10 weeks. Today, Intel shares are back to where they were at the start of 2018.

Is the rally really over, or would this be a great time to pick up Intel shares on the cheap?

Let's have a look.

Three reasons to stay away from Intel

The recent weakness in Intel's stock may be more than a quick correction. This ticker is still beating the S&P 500 from a longer-term perspective, putting in a 33% gain over the last 52 weeks and 64% in three years. And looking ahead, analysts expect nothing more than modest earnings growth over the next five years, clocking in somewhere near 10% per year. It's easy to see why some Intel investors are getting cold feet -- ready to jump ship at the slightest hint of trouble.

The company is looking for a new CEO, having parted ways with Brian Krzanich in June under scandalous circumstances. Krzanich stepped out after five years on the job, which was an unusually short tenure for a company with a total of six CEOs in its 50-year history. That adds uncertainty to a company with a downright stoic history. Intel investors aren't used to this drama, so the CEO issue weighs on the stock until a permanent replacement can be found.

Technical issues are also clouding Intel's skies at the moment. The progression from 14-nanometer to 10-nanometer chip traces is taking longer than planned, giving archrival Advanced Micro Devices (NASDAQ: AMD) an opportunity to beat Intel to the market with its own 10-nm solutions in partnership with chip manufacturing specialist Taiwan Semiconductor Manufacturing (NYSE: TSM). Again, Intel's investors aren't used to the company playing catch-up.

Taken together, these three issues might be enough to steer you away from that buy button for Intel shares. They could even make you want to sell the shares you already own.

Man in a business suit balancing piles of coins on an old-fashined set of scales.

Image source: Getty Images.

Three reasons to buy Intel shares today

This is not Intel's first rodeo. The company has been here for five decades and plenty of temporary panics, often with AMD snapping at its heels in a rapidly changing market. There may be some details unique to the current situation, like the lack of a CEO and a rare struggle to keep up with next-generation manufacturing technologies, but that's hardly the whole story. Intel has the resources and the know-how to get through these murky waters, backed by $12.7 billion of annual free cash flows.

On that note, Intel is making some big investments in infrastructure upgrades right now. The company expects a cool $15 billion in capital expenditures in 2018, having raised its capex guidance by a full $1 billion over the last two quarterly reports. This is Intel voting with its bulging wallet. The company wouldn't ram this much cash into its manufacturing structures if management saw anything less than a great environment for long-term growth up ahead. Beyond the markets for regular PC systems and data center servers, Intel is exploring new vistas such as ultra-fast memory modules and advanced wireless communication chips. The times, they are a-changing -- and Intel is not afraid to change right along with them.

Finally, Intel's stock does not look overpriced at all. I would still call it a value play, trading at 12 times trailing earnings and 3.1 times the company's total book value. Baking in analysts' growth targets as well, Intel investors are looking at a PEG ratio of 1.2 -- fairly valued at worst.

Intel is a buy for patient investors

So Intel remains a strong business with many years of solid growth ahead of it. I'm not going to pound the table with a strong buy recommendation here, but it isn't a sell of any kind, either. The niggling flaws listed above are just that: temporary distractions, unlikely to cause any lasting damage. You really can't go wrong with owning Intel for the long haul.

The longer your investing horizon is, the more Intel looks like a buy today. Short-term speculators will want to look elsewhere.

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Anders Bylund owns shares of Intel. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.