Is Intel a Buy, Hold or Sell Now?

Intel’s (NASDAQ:INTC) most recent earnings release was moderately positive, with investors rewarding the tech giant by driving up the share price 3% following the news.  The reported $0.57 EPS (Earnings per Share) was a positive surprise and a 5% year over year revenue increase was also good news.  However, in the short term at least, investors chose to ignore the modest 0.7% decline in gross margins; this despite a 14%revenue increase in their higher margin data center segment.   CEO Paul Ottelini sees continued success of recently introduced Ultrabook models and is confident the upcoming release of Windows 8 will bump sales across Intel chips targeted markets from PC’s to notebooks/laptops, ultrabooks and even the server market.

Intel dominated the PC era but what happens now that PC sales are declining and the world is going increasingly mobile?  Is this tech bellwether stock a BUY, a WAIT and SEE, or a STAY AWAY?

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

C = Catalyst for a Stock’s Movement

Although Windows 8 won’t hit the consumer market until October, the final release version is ready and is already receiving rave reviews for some of its new features, like increased touch screen capability.  Although tablets and smartphones are generating all the buzz, there are still users who need the kind of capability you can only find in a keyboard based desktop/laptop/notebook.  Think spreadsheets, powerpoint presentations, word processing, and data base applications.  If Window 8 is well received, Intel stands to benefit handsomely but so will competitors Advanced Micro Devices (NASDAQ:AMD) and ARM Holdings (NASDAQ:ARMH).  Intel based smartphones are on their way and market reaction to these offerings could also act as a catalyst for the share price.

H = High Quality Pipeline

Asking if Intel has a high quality pipeline is like asking if it snows in Buffalo.  They have led the tech industry for what seems like forever with a never-ending stream of revolutionary products like the Centrino processor which fueled the laptop boom and now the latest entry into that line of mobile devices – the Ultrabook.  Their latest potential game changer is Medfield, a processor which will get Intel into the smartphone market.  Motorola (NYSE:MSI) and Intel are ready to launch their first entry in a matter of weeks and other manufacturers are incorporating the Intel offering with Chinese manufacturer ZTE preparing to launch the first Intel chip based smartphone into the European market in September of 2012.

E = Equity to Debt Ratio is Close to Zero

Intel’s debt-to-equity ratio is very close to zero at 0.15.  Their total debt as of the most recent quarter (mrq) is $7.23 billion with almost twice that amount in cash on hand — $13.65 billion.  Considering some of Intel’s acquisitions over the last several years, this is an impressive achievement.

A = A Level Management Runs the Company

Intel management stayed on top of the PC revolution and earned the admiration of the business community but some feel they underestimated the mobile revolution that followed and is still exploding.  One hallmark of great management is the ability to recognize competitive threats and react.  CEO Paul Ottellini did just that when he brought in former Apple (NASDAQ:AAPL) engineer Mike Bell and gave him full autonomy to get Intel into the smartphone market.  The results of the efforts are still unknown, but the company’s track record in moving from the desktop to the laptop era bodes well for their success.

S = Support is Provided by Institutional Investors & Company Insiders

As a DJIA (Dow Jones Industrial Average) component, it should come as no surprise Intel has a large percentage of institutional ownership – 53.33%.  The top five holders are Vanguard, BlackRock, Bank of New York Mellon, Invesco, and Northern Trust.

E + Excellent Relative Performance versus Peers and Sector

Many investors consider ROE (Return on Equity) as an excellent measure of management effectiveness.  Intel’s ROE of 25.47% dwarfs that of its major competitors.  Beleaguered Advanced Micro Devices (NASDAQ:AMD) has a negative ROE of 45.61%; Arm Holdings (NASDAQ:ARMH) stands at 13.57%; and NVDIA (NASDAQ:NVDA) is at 11.64%.

T = Trends Support the Industry in which the Company Operates

Intel manufactures the brains behind the devices that can be lumped into the category of “computers.”  Although they are playing catch up with the smartphone category of mobile computerized devices, they are ready to get into that game.  The trends towards all things mobile with longer battery life are growing exponentially and Intel’s storied history suggests they can be a successful competitor in the space.  Cloud computing is another trend and Intel’s recent announcement of partnering with VMware (NYSE:VMW) to develop secure platforms is evidence of INTC’s capabilities in that space as well.

Conclusion

If you believe Intel’s history of technological excellence can be extended into the smartphone space then the company is definitely a BUY.  More cautious investors might want to adopt a WAIT and SEE posture to gauge market reaction is to Intel based smartphones before putting any money on the table.

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