The Apple Zealots Could Have it All Wrong on Intel: Charting the Upside, and a 3.4% Dividend Yield

Intel (INTC) shares are not particularly popular these days, and Warren Buffett’s decision to dump them recently did nothing to raise their status. Nevertheless, Intel remains a Dow company with a track record of top quality tech innovation, plenty of money to try it again and a dividend yield twice that of your U.S. Treasury bonds. So what keeps investors from getting excited about this company? A fixation on the Apple (AAPL) iPhone that makes it easy to overlook what’s inside Intel.

Intel, unlike other chip makers, has not been invited to the Apple iPhone party. While Apple buys Intel chips for its Mac computers, Intel competitors like Broadcom (BRCM) and Qualcomm (QCOM) get the iPhone business. In other words, while Intel dominates Apple’s creeping-growth, old school business, other companies are getting the fast-growing mobile device work; and sharing in the gains a $100 billion revenue product like the iPhone can bring. Visions of iPhone 5 money to come have made both those competitors more interesting lately, as seen in a stock chart.

INTC Chart

INTC data by YCharts

CEO Paul Otellini has vowed to rectify this situation by making stuff for mobile devices so technically advanced that Apple can’t live without them. That’s not happened yet, but deals with Google’s (GOOG) Motorola Mobility and several smartphone companies overseas finally get Intel deep into the business. This lateness requiring Intel to play catch-up is a big reason Intel shares trade at far lower valuations than Broadcom or Qualcomm. That's a low PE ratio.

INTC PE Ratio Chart

INTC PE Ratio data by YCharts

All that Apple talk tends to blot out a few of the rosier details at today’s Intel, particularly from a value investor’s perspective. Intel, with a market cap of $134.1 billion, reports revenues up 62% and underlying profits up some 133% in the past three years. The company still makes products for most of the world’s computer servers and data centers, and those sales are going strong. Its shares offer a dividend yielding 3.4%; a payout of which totals a tiny fraction of earnings any given year. There’s some $5.3 billion in cash. And its share price is up 43% in the past three years, giving Intel a better record without much mobile than Qualcomm and Broadcom investors got cashing in on it. Here’s the comparison with dividends.

INTC Total Return Price Chart

INTC Total Return Price data by YCharts

YCharts Pro gives Intel a rare double perfect score for fundamentals and share price value.

Many investors remain skeptical of Intel’s fundamental philosophy going forward. The company miscalculated the speed of the mobile tech revolution early on, and some believe it’s still underestimating the conversion. Intel leaders are putting a lot of effort into ultrabooks components because they expect these super light, super powerful computers can compete with iPads. They say small but steady improvements in their smartphone processors will lead to products so much better than those offered by competitors that Apple and Samsung will find them irresistible.

Perhaps those assumptions will prove a bit naïve. But it’s not hard to imagine that one of the biggest and best tech innovators in the world will eventually invent its way into the massive mobile market. Its fat dividend yield, cash hoard and cheap shares make Intel worthy of attention, even if mistakes will be made.

Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.



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