Warren Buffett is always quick to warn investors about
becoming emotionally attached to astock they own.
To paraphrase the Oracle of Omaha, "That 100shares of stock
doesn't know that you own it." I've echoed that philosophy on
occasion, telling clients that a hundred shares of
Cisco (Nasdaq: CSCO)
won't tell you it loves you when you come home at night.
But as investors, we sometimes find ourselves gravitating
toward the same group ofstocks because of their dependable
performance. Buffett himself is guilty of this with holdings such
The Washington Post Co. (
, which have served as two of
Berkshire Hathaway's (NYSE: BRK-A, BRK-B)
stalwart holdings for decades.
At StreetAuthority, we refer to these names as "Forever"
stocks. But there's one stock in particular I find myself coming
back to time and time again:
Intel (Nasdaq: INTC)
Long Live The PC
Fifteen years ago, the strongest argument for owning shares of
Intel was that the company manufactured the brains for 80% of the
world's computers. As the dot-com bubble grew bigger, doe-eyed
investors uttered that phrase and others as they drove tech stock
prices and price-to-earnings (P/E ) ratios up to unsustainable,
The bubble popped, attitudes soured, and tech shares drifted
around in abear market that seemed to have no end. However, I
haven't used a computer any less since then -- and most likely,
neither have you. Although personal computing has evolved from
desktop to laptop to smartphone to tablet, the need for
processing speed has not disappeared.
Like any well-managed company, Intel has continued to adapt.
Three years ago, the company acquired software security giant
McAfee. Most recently, Intel acquired ST-Ericsson's GPS division,
a joint venture between European telecom component manufacturers
Ericsson (Nasdaq: ERIC)
, in a push togain more componentmarket share in the GPS device
It's clear Intel's making the right moves, but you would never
know it by theprice action of the stock.
Aside from the bear market lows of 2002 to 2003 and 2008 to
2009, the stock has lumbered in a range of $20 to $25 on average
while the company has piled upcash and increased itsdividend at
an annual average rate of nearly 10% over the past five
||Apple has chosen to power the latest generation of
MacBook Air laptops with Intel's Haswell-based
Imagine getting a nearly 10% pay raise everyyear for the past
five years. Intel shareholders did. And the current levels of the
stock price are an excellent entry point.
Signs Of Growth
Intel is launching a slew of new products, most notably its
Haswell architecture CPUs (central processing units) and
Atom-based system-on-chip (SoC) devices. The new Haswell platform
uses only 17 watts, less than half the average power consumption
of the current generation of computer CPUs.
Apple (Nasdaq: AAPL)
is basing its newest generation of MacBook Air laptops on this
processor, boosting their performance markedly.
The company is on track to spend nearly $11 billion oncapital
expenditures. Only $2 billion has been earmarked for land and
buildings. The rest of Intel's dry powderwill be focused on
developing new products and gaining market share in the
smartphone and tablet chip segment. Currently, that share sits at
just 5.5% worldwide. With Intel's might andmoney , there's room
The Numbers Speak For Themselves
Another reason (and probably the main one) I find myself coming
back to Intel is the company's consistent financial
- Over the next year, sequentialrevenue is expected to grow
by 6%, to $56.7 billion in 2014.
- Earnings per share are projected to grow by nearly 11%,
from an estimated $1.92 this year to $2.13 in 2014.
- Even more astonishing is the rate at which Intel's pile of
cash is growing. The company is on track to increase its cash
by 10% from $12.8 billion last year to $13.7 billion this year,
andanalysts expect cash to grow even more significantly in
2014, to $17.9 billion.
- As mentioned, Intel returns cash to shareholders in the
form of dividends. The company has increased the common
dividend an average of 12.6% annually over the past four years,
from 12.8 cents per share each quarter to 22.5 cents, nearly
doubling its payout.
Risks to consider:
Intel's business relies heavily on the traditional PCmarket .
Although reports of the PC's imminent demise are exaggerated,
smartphones and tablets are replacing them as our go-to personal
computing devices. The company is preparing for this byinvesting
heavily in the mobile and tablet chip segment. Intel is also
always at risk on a macroeconomic level, as the semiconductor
sector is highly cyclical and subject to the health of the
globaleconomy . There are signs of economic growth in the U.S.,
but the European market is still soft, and there's concern about
the sustainability of China's growth story. Intel seems to have
taken thesefactors into consideration and continues to diversify
its product mix while hoarding rainy-day cash.
Action to take -->
A "Forever" stock like Intel is a natural fit in a
well-constructed portfolio. The stock currently trades near $24
with a forward P/E ratio of 12.5. A 12-monthprice target of $31
makes sense. A 30% priceappreciation would translate into a 24%
increase of the forward P/E, which is reasonable based on the
company's consistency. Factoring in the 3.75%dividend yield would
bump the total return up to nearly 34%.