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Intel Stock: Low Valuation Makes it Worth The Wait

Stock MarketsSep 06, 2021 09:31AM ET
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© Reuters. Intel Stock: Low Valuation Makes it Worth The Wait

There’s no denying that Intel (NASDAQ:INTC) stock is cheap.  Shares in the semiconductor giant trade for a low forward price-to-earnings (P/E) ratio of 13x. That’s far below the valuation of its main chip rivals, Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA), which trade for around 44x and 54.9x earnings, respectively.

Much of this valuation discrepancy has to do with the company’s anemic growth and its many past missteps. But with a new CEO, Pat Gelsinger, who could turn around its ship, Intel might be able to make a comeback. If it does, earnings could improve, and the market may in turn reward it with a much higher forward valuation multiple.

The issue? This will take time. Impatient investors may not be willing to ride things out until the stock, at $53.51 today, starts to move higher once again. (See Intel stock charts on TipRanks)

That said, given its low valuation, possible improvements ahead for its business, and its solid 2.6% dividend yield, I’m bullish. The upside from proving its critics wrong outweighs the risk that it further disappoints investors.

INTC Stock: Still Paying for its Past Mistakes

In recent years, AMD and Nvidia have seen strong market share gains, at Intel’s expense. This has been most severe in terms of CPU market share. Since 2019, Intel has gone from having 76.8% of the CPU market, to just over 60%.

The reason? Manufacturing hiccups, which in turn has resulted in product delays. As mentioned above, its new leadership is working to move on from these past issues, and make up for lost time.

For now, investors will still punish the stock for its past mistakes. Worse yet, as analyst Christopher Danley of Citi put in a research note published last month, the company could face continued challenges in the short-term.

However, investors shouldn’t take this to mean the best move is to avoid INTC stock. Heavily discounted, these issues are more than accounted for at today’s share price. If it manages to improve its results? Investors could respond by pushing the stock to substantially higher prices.

Why it May be All Uphill From Here

Again, the Intel comeback will take more than a quarter or two to play out. That’s the case when it comes to resolving issues with its supply chain, via new outsourcing deals with Taiwan Semiconductor Manufacturing (TSM), as well as the $20 billion it’s investing into its U.S. foundry operations.

It’s also the case when it comes to releasing new CPU and GPU chips to compete with AMD and Nvidia. In short, it won’t be until at least 2022 that its turnaround starts to bear fruit. Share performance could remain underwhelming for the months ahead. 

Nevertheless, buying INTC stock now, ahead of the situation continuing to improve, could be a worthwhile move. Why? Again, with shares priced for disappointment, downside risk may be minimal. It could make a trip back to its 52-week low ($43.61). Yet that pales in comparison to the possible upside if its turnaround efforts pay off.

To what extent is the upside potential? If the company’s efforts prove effective, it could be able to hit the top end of analyst estimates for 2022 ($59.18 per share).

In turn, the market could also reward it by giving shares a much higher forward valuation multiple. A move to a forward P/E in the high-teens, from the 13x it’s at today, could enable the stock to make its way to between $90 and $100 per share.

What Analysts are Saying About INTC Stock

According to TipRanks, INTC stock has a consensus rating of Hold. Out of 25 analyst ratings, 9 rate it a Buy, 9 analysts rate it a Hold, and 7 analysts rate it a Sell.

As for price targets, the average Intel price target is $61.29 per share, implying around 14.54% in upside from today’s prices. Analyst price targets range from a low of $40 per share, to a high of $85 per share.

Bottom Line: Intel could be a Buy

Admittedly, it’s still questionable whether a new CEO at the helm will change the story for Intel. Even if it does, it may take time, as the stock continues to flounder.

However, if investors can be patient, it may pay to take advantage of its low valuation, and buy INTC stock. The wait may be worth it. Not only that, there’s a decent dividend to collect along the way.

Disclosure: At the time of publication, Thomas Niel did not have a position in any of the securities mentioned in this article.

​Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

Intel Stock: Low Valuation Makes it Worth The Wait
 

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Comments (2)
In Sight
Insight Sep 06, 2021 11:43AM ET
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.. And the result will be whatever the outcome is, Intel will have to fight more intense and at more different battle grounds at the same time. This drives the ASP and margins down (foundry business but also own SoCs). Most parts of the market share fragmentation are irreversible and wont be recoverable. Intel will also never be able to return to their old crazy margins, that they used to have. Foundry business margins are much lower compared to their old dc business.
In Sight
Insight Sep 06, 2021 11:31AM ET
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"could", "might". Enough said i guess. Hey if I play the lottery I could or might win too. The point you should not forget in all of this is, Intel has currently to heavily take money into its own hands to invest into a new battle ground. If this does not work out - and this is absolute not guaranteed or granted at all - this will put pretty much a lot of stress on Intels financial sheet. In the end they dont really have no other choice but to do so. Thus It is just a consequence of their position/misery they are in, Pat was just an accelerant. Just dont forget, nothing here is granted as you describe it. All actions are on very thin ice. Having money in the bank helps, having competent staff too, but both does not guarantee anything. You are adresssing partially their low valuatuon. But with declining ASPs and margins while having extremely higher necessary investments and competition (driving down margins even further) the stock price will go down/sidewards.
 
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