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Is Intel Still A Buy?

Five months ago, I showed you several reasons to consider buying Intel in the article 3 NASDAQ Stocks You Should Look At Today As The Index Reaches And All-Time High – Part 1.

Today I want to answer the question – Is Intel Still A Buy after it released its most up to date earnings and its shares fell 10%.

You can read the past article in full by using the link above.

But if you don’t want to, here’s a quick recap of why I said you should consider buying Intel in the last article.

You’ve heard about and used this companies’ products for years… Maybe even decades.

Intel was the creator of the semiconductor in October 1971.  And soon after the company’s products were in almost every PC on Earth.

Today, it’s still the #1 semiconductor producer in the world as it owns an estimated 77%+ market share in various semiconductor markets. 

Intel’s owned this massive market share for years now.  And will continue doing so well into the future due to its competitive advantages.

Namely its brand name and power, distribution network, and economies of scale.  These advantages allow Intel to keep competitors at bay.  And allow the company to earn huge profits and cash flow which I’ll talk about more later.

It dominated the semiconductor market for decades… But it also now operates in the sensor and driverless car arenas after recent acquisitions.  And these all will be huge areas of growth in the years to come.

With the rise of the Internet of Things (IoT) soon almost everything we use daily will have semiconductors and sensors in them.

From the shoes you wear showing you how to run better… To chips in your body showing you when you need to go to the doctor… To smart traffic lights around cities minimizing rush hour traffic.

In the coming years and decades almost everything we use will have semiconductors and sensors in them showing you data on how to avoid things.  Or how to do them better and faster.

With Intel’s dominance in these two arenas – plus driverless car technology – Intel is well positioned to continue dominating now and well into the future.

Plus, its enormously profitable now too…

Over the last decade Intel’s produced an average 29.1% operating margin every year over the last 10 years. I look for any company to produce above 10% margins on a consistent basis to consider a stock for investment.

Operating profit is the amount of profit a company produces from its operations… And is after subtracting costs to do business and research and development… Which Intel invests in enormously.

It also produces a ton of cash too…

Its FCF/Sales margin averaged 19.7% per year every year for the last decade… I look for anything above 5% on a consistent basis to consider an investment.

Free cash flow or FCF is the amount of money that’s left over after all costs to run the company now and to grow it.  This number is also after paying taxes too.

Think of FCF as the ultimate profitability of a company.  Because its money the company makes after paying all its bills.

Intel meets and surpasses my threshold on both important metrics… These are important because they show Intel produces profits and cash to continue funding operations and growth.

These enormous profits also make Intel a super safe investment as well.

And on top of all this, Intel also pays a 2.1% dividend currently.

With all this you figured Intel stock would be expensive right now… But it’s not.

As of this writing Intel’s selling at a P/E of 12.2 and a P/FCF of 8.1.

I look for potential investments to sell below 20 on both metrics.  And Intel is well under these.

Intel will be around for decades to come – no matter what the economic situation becomes.

And it will make you money both today and well into the future because of the things outlined above.

If you’re investing now, look at adding Intel.

***

This thesis to buy Intel has sort of continued playing out in the last five months since I last updated you on its stock.

And its latest earnings came out on October 22nd, 2020.

  • Revenues fell 4% in the year to year quarterly period to $18.3 billion.
  • Operating profits fell 22% to $5.1 billion in the year to year quarterly period.
  • Earnings per share fell 25% to $1.02 per share in the year to year quarterly period.
  • And free cash flow was a solid $15.1 billion in the quarter

This was a mixed bag quarter on paper… But a stellar quarter when considering the horrible economic situation.

However, the market did not like these results.

After the earnings release, its shares fell as much as 10% in trading.

Which means its even cheaper now than it was 5 months ago when I first recommended it in June.

Its P/E is 9.5.

Its P/CF is 5.9.

And its forward P/E is 10.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

Why below 20?

Because that means the company is at worst fairly valued… And if its significantly under 20 that means the company is undervalued.

Should you still consider buying Intel even after its mixed bag earnings and its 10% share price fall?

Yes.

Even though its numbers are down due to the coronavirus its still producing huge profits, it’s still producing huge cash flows, it’s still got enormous competitive advantages, and it’s still cheap.

These all give Intel stock an enormous margin of safety…

This means you have a better chance of earning high investment returns owning it going forward.  And these make investing in it safer.

Consider buying Intel (INTC) to protect yourself and your investments in these uncertain times.

And use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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