Why Intel Is a Buy Right Now

Oh Intel (NAS: INTC) , dear Intel! What are we supposed to do with you -- back up the truck, or sell now and never look back?

The chip giant warned us last month that the third quarter would be brutal. Sales estimates were slashed by 8% on slow growth in emerging markets and soft enterprise sales. Intel's stock, which normally is as dependable as a Swiss watch, dropped as much as 14% over the next month or so.

And now the other shoe has dropped: Intel's final third-quarter numbers are in, along with a very cautious outlook.

The top-line tally of $13.5 billion edged out the midpoint of management's new, lower targets by 2%. Analysts stuck closely to Intel's suggested figure here, and their adjusted earnings targets also turned out to be too pessimistic. Intel's $0.60 of earnings per share easily crushed the $0.49 consensus.

But share prices plunged as much as 4.8% in after-hours trading, and here's why: The revenue forecast for the fourth quarter was below the Street view, centered on $13.6 billion. And running the numbers on management's expected gross margins, expenses, tax rates, et cetera, I arrive at an implied earnings target of $2.5 billion or roughly $0.49 per diluted share. The current analyst target for earnings is $0.53 per share. Intel still leans on macroeconomic worries and soft enterprise growth to explain these targets.

Fight or flight?
There are at least two ways to look at this report:

  • An unmitigated disaster with no end in sight, or

  • a totally brilliant buy-in opportunity.

The market clung to the more gruesome option at first, but is coming around to the buy-in view.

Intel set a fresh 52-week low overnight but has bounced back somewhat on torrential trading volume. For every panicked seller, there's a buyer who sees an opportunity to buy low now and sell high later.

And do keep in mind that Intel's dividend looks juicy at these prices -- the yield is topping 4.1% right now. To put that yield into perspective, it's right in line with cash machines such as electric utility Southern (NYS: SO) and oil producer Statoil (NYS: STO) . These are proven money-printing machines, and Intel is holding its own in the comparisons.

Getting in now is a wealth-building opportunity of epic proportions, and a rare one given Intel's strong share price history:

INTC Dividend Yield data by YCharts.

I love dividends! Where do I sign up?
Okay, but it's a good deal only if you believe that Intel will bounce back. Otherwise, this could be the start of a long and very painful slide into oblivion.

The Cassandras among us will point to the death of the PC. Tablets and smartphones are reducing the formerly profitable PC market to a pile of obsolete rubble, and Intel's mobile efforts can't hold a candle to category leader ARM Holdings (NAS: ARMH) .

And then the Micawbers fire right back: Mobile gadgets are no good without muscular servers feeding them data. Also, the mobile war is only a few skirmishes old and by no means won or lost yet.

The bearish case looks compelling on the surface, but I have to side with the bulls here. There will always be a place for big-iron solutions in the computing world, and Intel is a nearly unchallenged winner in that space nowadays. If ARM or Advanced Micro Devices (NYS: AMD) manage to pose real threats in the server space, I'd start worrying about Intels' future. But AMD is practically dying and ARM has yet to prove its mettle in the data center. The enterprise space is bound to bounce back, with Intel firmly tethered to its spine.

So until further notice, this plunge looks like a knee-jerk reaction to short-term problems, and I'd be happy to start a bullish CAPScall on Intel today if I didn't already have one in place.

If you're looking for more guidance on whether you should buy Intel, our technology analyst Andrew Tonner runs through all of the key topics investors should understand about the chip giant in our new premium report. Better yet, you'll continue to receive updates as news develops for an entire year. Click here now to learn more.

The article Why Intel Is a Buy Right Now originally appeared on Fool.com.

Fool contributor Anders Bylund has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend Intel, Southern, and Statoil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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