Is Intel a "Value Trap"
Right now INTC is not one of my top 20 ideas.
The weakest idea in my top 20 is Masco - MAS. To replace MAS I would have to be convinced that INTC had earnings power of $4.00 in 2025. I can look past the temporary problems caused by the current inventory glut at INTC’s customers. I cannot look past the increased competition from AMD and others.
INTC did earn $4.50+ in 2018 and 2019, but those results look like “peak” earnings that might me difficult to replicate in the future. If I understood the technology better, I might come to a different conclusion. A few of my concerns are:
The CEO did not give a solid answer when asked about the dividend.
INTC is extending the depreciable lives of its fixed assets from 5 to 9 years. Accounting games are never a good sign.
Issues that have to do with China are very difficult to analyze.
It might be the case that owning your own fabs will be an advantage over the next 10 years, but it might not be an advantage over the next 3 years.
It is interesting to note that you cannot find a famous value investor among the top 25 holders on Guru Focus, and the stock is not held by any of the 15 value investors I monitor frequently
A regional broker has a 2024 EPS estimate of $2.75, at a 12x multiple, his target is $32
I would really rather spend my time trying to find the next AMD. That stock went from $3 to $150 in 6 years. INTC is a difficult stocks to unravel.
The more important issue to consider is:
Why has INTC been such a “value trap” over the the last 5-10 years?
I think a value investor has to approach the technology sector with a great deal of caution. INTC’s earning were flat at $2.00 from 2010 to 2017, and then exploded to over $4.75 in 2018 and 2019. That is a very unusual earnings pattern The PC boom of COVID lockdowns made 2020-2022 very tricky to evaluate
So let’s mark this down as:
Learning experience #1, on 1/26/23, who will be the winner? We will revisit in 6 months.
INTC = $28.16
Masco = $51.04
AMD = $75.40
NVIDIA = $203.65, Wall Street’s favorite at a PE of 60+
S&P = 4070.56
If you pointed a gun at my head, and told I had to own a tech stock I would prefer
Corning - GLW, Zebra Technologies - ZBRA, or Logitech - LOGI
I have spent a lot of time over the last few days looking at the smaller semiconductor stocks. I have found nothing to get excited about. Maybe Skyworks Solutions - SWKS, but I wait until after they report.