Inside Wall Street: Why You Should Have Intel Inside Your Portfolio
It's only logical that President Obama aims at ensuring continued U.S. leadership in technology, in part by preparing the next generation of Americans to excel in such a challenge and by putting a top priority on high-tech jobs.
So, it's understandable that after his visit to some top CEOs in Silicon Valley on Thursday the President has scheduled a tour of an Oregon Intel (INTC) plant today. There he'll talk with Intel President and CEO Paul Otellini (who's often a critic of Obama but is being named to the president's jobs and competitiveness council) about that ambitious aspiration. And perhaps he'll gain an "Intel Inside" insight into the fast-moving high-tech world. Investors might want to do the same.
After all, Intel is the world's largest manufacturer of microprocessors, the "brain" and central processing unit of a computer system. Intel's products have also worked their way into becoming the "nervous system" in a PC or other computing devices, through its chipsets, or microcontrollers, that are responsible for transmitting data between the CPU and input, display and storage devices.
Intel's products are almost everywhere, with strong leadership in servers, notebook and netbook computers, and consumer-electronics devices that are starting to connect to the Internet. Intel has also developed products for the fast-growing and intensely popular smartphone and tablet computer markets.
A One-Stop Answer for Tech Investors
"Anything that computes and connects to the Internet now becomes part of the total available market that we can go after," said Stacy Smith, Intel's chief financial officer and senior vice president, at the Technology and Internet Conference that Goldman Sachs (GS) sponsored on Feb. 14.
Indeed, anyone seeking to know a significant part of the huge tech world can't go wrong in getting "Inside Intel" and learn what makes it tick, literally and figuratively. Some analysts swear by Intel, arguing that for investors seeking entry in the global growth of technology, Intel is the one-stop answer.
Little wonder that Wall Street is upbeat about Intel. A total of 54 analysts from major investment and securities firms follow the company, and 33 of them recommend buying the stock, while 17 rate it a hold. Only four analysts urge investors to dump the stock. Now trading at $22 a share, the bulls' 12-month price targets range from $25 to $30 a share.
"We like this industry heavyweight, as both a short-term and long-term holding, and investors seeking technology exposure should consider this high-quality equity," says Alan G. House, tech analyst at investment research outfit Value Line. Endowed with a healthy balance sheet, Intel has many interesting products coming on stream in 2011, which, when combined with a strengthening global economy, "augur well for another solid showing this year," he adds.
The Mobile Market Challenge
For all the fierce competition in the industry and complex market forces in technology, Intel is fundamentally strong and in an enviable industry leadership position. "Intel has the best competitive position in our semiconductor universe," says Clyde Montevirgen, the tech guru and analyst at Standard & Poor's. He's impressed with Intel's "strong balance sheet and strong free cash flow, while carrying lower financial and business risks than most other chipmakers," says Montevirgen.
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He notes that what could damp Intel's revenue growth is its still-limited share in the fast-growing mobile markets, although he believes the company will continue to thrive in the PC and server segments. Intel is conscious of its late entry into smartphones and tablets, but the company is determined to succeed where it's still playing catch-up. One of its collaborations in this area is with Google (GOOG) and its Android operating system for smartphones.
"Intel has audaciously claimed its smartphone applications processor, called Medfield, will offer superior performance and longer active battery life" versus its competitors, notes Uche Orji, semiconductor analyst at investment bank UBS. He says Intel expects its Medfield-based smartphones and tablet computers will start shipping sometime this year. Medfield is the next-generation product for Intel's current Moorestown processor, designed for Google's Android smartphones. Qualcomm (QCOM), NVIDIA (NVDA) and Texas Instruments (TXN) are Intel's rivals in this market.
Intel's focus in the second half of 2011 "will be on delivering Medfield, which could put it ahead of rivals," says Vivek Arya, analyst at Bank of America Merrill Lynch. He notes that although it's specifically designed for smartphones, Medfield could also be used for tablets.
"An Upside to Our Intel Model"
"Intel has made Google's Android its top priority," says Arya, noting that Intel is already collaborating with the Internet giant in data centers. So, Android is a natural extension of this relationship. The analyst concedes that Intel has a significant number of strong competitors here, but any progress in mobile phones and tablets would be welcome and "an upside to our Intel model."
Predictably, many of the large institutional investors that are income- and value-oriented have Intel, which provides a dividend yield of 3.6%, in their portfolios. They're led by State Street Global Advisors, which owns a 3.7% stake; Vanguard Group which holds 3.6%; and Blackrock Institutional Trust with 3.3%.
Indeed, as Value Line's analyst Alan G. House points out, Intel is a tech heavyweight that deserves to be inside investors' portfolio.
Also See:Intel CEO to Join White House Council on Jobs
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