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Is Intel Still A Buy After Profits Fall 47%?

I first recommended you Intel (INTC) back on June 11th 2020… Almost 11 months ago now.

And since then, have written several more articles telling you to buy the stock.

You can see all these below.

Today, I give an update after it released its latest quarterly earnings and answer – Is Intel Still A Buy After Profits Fall 47%? 

You can read the past articles in full using the links above.

But if you don’t want to; here’s a quick recap before we get to today’s update.

***

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.

***

… Much of this came after January 13th, 2021 when it fired its CEO Bob Swan and will replace him with former VMware Chief Pat Gelsinger effective February 15th.

Gelsinger also used to be Intel’s technology Chief as well.

Why is this big news?

Because Intel’s major problem over the last few years has been its lack of technological improvement and innovation.

Hiring a tech CEO to get back to innovating and replacing Bob Swan who was chiefly a finance and accounting person will help this.

And its still cheap enough to buy.

Its P/E is now 11.2.

Its P/CF is 6.6.

And its forward P/E is 11.7.

Due to the changing of its CEO, its continued stellar results, and it still being cheap; I continue recommending you buy Intel stock to protect your portfolio.

***

This thesis to buy Intel due to its enormous competitive advantages, profit and cash flow, and dividend payments continued to play out when it released its most up to date quarterly earnings on April 22nd… Sort of.

  • 1st quarter 2021 revenue fell 1% in the year-to-year quarterly period to $19.7 billion.
  • Operating profits cratered from 35.5% in 2020 to 18.8% in 2021.
  • And earnings per share fell 37% to $0.82 per share in the year-to-year quarterly period.

Ouch…

These things led to shares falling 10.7% in the days after the results came out.

What happened?  And is Intel still great?

Covid happened… Not only the initial panic.

This led people to keep their money due to lost jobs and then the fear we were headed toward another Great Depression during the early phases of the pandemic.

The lost jobs and fear led people to buy less stuff because they were conserving money. And the computer industry was hit hard by this.

Another major factor – an even bigger one in my opinion – is the supply chain issues the complete economic stoppage caused… And that we’re still dealing with today.

There are mass shortages of products worldwide – lumber, steel, plastics, etc. – due to the economy coming to a complete stop last year.

This is one reason for example lumber prices are skyrocketing right now as talked about in the article below.

And its also causing major issues in the semiconductor industry right now too. And this is what Intel’s entire business is built on.

There’s such a shortage of semiconductors due to manufacturing, supply chain, and inflation issues that its effecting multiple industries.

  • Computers
  • Phones
  • Tablets
  • Vehicles
  • And more.

The shortage of semiconductors is so extreme Joe Biden’s White House called leaders in this industry to meet at the White House to discuss what happened… And how to potentially fix it.

What caused this?

The complete stoppage of everything last year during the initial panic… Which led to the closures of manufacturing facilities worldwide.  This stopped the transportation of goods between countries… And this slowed or stopped the production of many things worldwide.

This is still causing supply chain issues for many commodities and products worldwide… And it’s especially hurting the semiconductor industry because it relies on not one of the things in short supply… But many of them.

Plastic, metal, and oil just to name a few.

This extreme shortage is why profits cratered in the first quarter of 2021 compared to this time last year.

And this will last for a while longer.

The best estimate right now is that maybe toward the end of this year these supply chain and commodity issues will end.  With a huge emphasis on maybe.

This will continue affecting Intel for an undetermined amount of time… To a large degree as you saw from the huge fall in its operation profit margins above.

Over the long term this won’t affect Intel.  And every company I recommend you either buy or avoid is meant to own for the long term.

But it does affect the company now… Does this mean its still good enough to buy?

Yes, because again, I see this as a short-term problem the company can overcome.

Why?

Because of its still enormous competitive advantages, profits, and cash flow production.

While lower – again for a short time – these are all still intact.

Is it still cheap enough to buy?

It is…

Its P/E is now 12.8.

Its P/CF is 6.8.

Its forward P/E is 12.5.

And its EV/EBIT is 10.6.

These show that while its slightly more expensive than it was the last time I talked to you about Intel… That it’s still cheap enough to buy.

For this reason – and the others mentioned above – I continue to recommend you buy Intel Stock to protect your retirement portfolio.

Intel is still great enough and cheap enough to overcome these short-term issues.  And its still a great company for the long term.

Plus, it continues to pay you an inflation fighting – and portfolio protecting – 2.44% dividend.

Recommendation – Buy Intel to protect your retirement portfolio.

If you’re worried about these short-term risks, look at some of the stocks below that are also great buys for your retirement portfolio.

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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