3 Things Investors Should Know About This Forgotten Blue Chip
Blue chip stocks are not typically known for arousing excitement. By definition, blue chip companies are reliable and have the ability to operate profitably regardless of the economic environment. They are usually large, boring companies that have been in the market for decades. While Intel (NYSE:INTC) fits this definition fairly well, it could provide more excitement to portfolios than investors realize. Let’s look at three reasons why the world’s largest computer chipmaker may or may not belong in your portfolio.
The consumer shift from desktop computers to mobile devices has been well-publicized in recent years, but Intel continues to find a way to generate solid earnings. In the first quarter, Intel’s net income climbed 3% year-over-year to $2 billion, while earnings per share jumped 8% to $0.41. The semiconductor’s data center group, which represents sales of chips to servers, surged 18%, helping to offset its PC client group sales that slipped 8% in the first quarter.
“Year-over-year revenues were flat, with double-digit revenue growth in the data center, IoT and memory businesses offsetting lower than expected demand for business desktop PCs,” said Intel CEO Brian Krzanich. “These results reinforce the importance of continuing to execute our growth strategy.”
On the other hand, Intel’s quarterly results only matched Wall Street’s expectations. The bar was even set lower since Intel cut its revenue forecasts earlier this year. In February, Intel revised its first quarter outlook from $13.7 billion, plus or minus $500 million, to $12.8 billion, plus or minus $300 million. The actual figure came in at $12.8 billion, unchanged from the same quarter a year earlier.
Despite being considered “old tech,” the potential is great at Intel. The company’s Vietnam plant is responsible for 80% of all semiconductor chips used in computers around the world. Nonetheless, the decline in worldwide PC shipments does not appear to be over as the first quarter posted a 5.2% year-over-year drop. Windows 10 may help alleviate this weakness eventually, but it’s too early to tell.
Aside from its traditional chip business, Intel has some interesting products coming out that resemble “new tech” innovation. At this year’s Consumer Electronics Show, Intel unveiled its $150 Compute Stick, a fully functional Windows computer that looks like the Amazon Fire Stick or Google’s Chromecast. However, it will plug into an HDMI monitor and will be used for light productivity jobs, Web browsing, streaming media, and social networking. Essentially, it will be the cheapest option for a non-portable computer.
Intel also demoed a button-size wearable computer, called Curie. It will include motion sensors and components to track various kinds of physical activity. Intel has partnered with Luxottica, the maker of Ray-Ban and Oakley, to use Curie in smart glasses. Wearable tech has yet to go mainstream in terms of glasses, but the possibilities are intriguing.
Intel’s stock performance over the past two years could be seen as a blessing or a curse. After dropping 15% in 2012, shares of Intel rebounded 26% in 2013. Last year, shares surged 40%, making it the best performer in the Dow Jones Industrial Average. The trend could be your friend, or a significant amount of Intel’s potential could already be priced into shares. Either way, investors should be cautious as Intel has suffered a rough start to 2015.
Last year, Intel completed $10.8 billion in share repurchases, helping to overclock capital gains and earnings per share figures by repurchasing 332 million shares. In the fourth quarter alone, Intel repurchased 115 million shares of stock worth $4 billion. In comparison, Intel only repurchased $2.1 billion of its shares in 2013. During the first quarter, Intel used $750 million to repurchase 21 million shares.
While Intel could be buying shares at precisely the wrong time, buybacks may be seen as a sign of company confidence, and they appear set to continue this year. As of December 2014, $12.4 billion remained available for share repurchases under Intel’s plan to repurchase up to $65 billion. Since 1990, Intel has repurchased 4.7 billion shares at a cost of $102 billion. Investors willing to hold onto Intel shares may also find comfort in its 2.9% dividend. Support remains strong at $28-$30 per share.
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