Can Intel Stock Find Its Way Out Of The Slump?

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[Updated 11/10/2020] Can Intel Stock Recover?

Intel (NASDAQ:INTC) stock has had a rough year, driven by delays in the company’s transition to the next generation 7-nano meter technology for its chips, some recent headwinds at its cloud and data center business, and strong competition from rival AMD in the PC and server CPU space. The stock is down by about 25% this year, significantly underperforming the NASDAQ which is up by over 28%. That said, there have been some positive developments that could help the company get back on track. In October, Intel announced a deal to sell its NAND business to SK Hynix for about $9 billion in a move that could allow the company to focus on its core CPU business, while bolstering its liquidity. Intel also appears to be more flexible with its manufacturing, recently noting that it could produce its next-gen chips in-house, or outsource them, or even use a hybrid model that leverages both internal and external fabs. Intel stock looks like good value at the moment, trading at just about 9.5x projected 2020 earnings. While growth could remain tepid in the near-term, Intel’s scale, its vast marketing and distribution footprint, and its large base of corporate customers, who rely on Intel processors and are likely averse to switching, should help the company in the medium to long-term.

See our indicative theme on Value Tech Stocks for a complete list of technology companies – including Intel, NetApp, and Oracle – that look like good value at the moment. The theme has underperformed this year, remaining roughly flat year-to-date, versus the S&P 500 which is up by about 10%.

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[Updated 9/3/2020] Value Tech Stocks

While high-growth information technology stocks have rallied sharply this year, with valuations looking increasingly stretched, we’ve picked a few stocks including Intel (NASDAQ:INTC)Cisco (NASDAQ:CSCO), and NetApp (NASDAQ:NTAP) that have relatively stable and mature businesses and still offer good value. Specifically, we have picked companies that are trading at a trailing price to earnings multiple of under 18x and have a market capitalization of over $10 billion. See our analysis Value Tech Stocks for more details on the returns and performance of these stocks. Parts of the analysis are summarized below.

Intel ($215 billion market cap, -15% YTD), the largest CPU vendor has been somewhat out of favor with investors on account of increasing competition from lower-cost ARM-based chipsets and the company’s delay in its rollout of its next-generation 7nm CPUs. However, Intel looks like good value considering its large base of existing customers, who rely on Intel processors and are likely averse to switch and also due to its vast marketing and distribution footprint. The stock trades at about 11x 2019 earnings.

Cisco ($178 billion market cap, -10% YTD), one of the largest network equipment providers, has also underperformed the market as it has struggled with top-line and bottom-line growth. However, the increasing digitization caused by the Covid-19 pandemic could drive demand for connectivity, in turn improving sales of Cisco’s networking software, and products such as switches and routers. The stock trades at about 16x FY’19 earnings.

NetApp ($10 billion market cap, -25% YTD) is a company that sells hardware and software focused on data management. While the company has seen a mixed performance this year due to weak demand from large customers and its significant reliance on hardware sales, it is looking to double down on the cloud computing market. Last month, NetApp closed a deal to acquire Spot, a leader in compute management, and cost optimization for public clouds. The stock currently trades at about 13x last fiscal year earnings.

So, these value technology stocks might give stable returns from current levels. But, what if you’re looking for a more balanced portfolio instead? Here’s a top-quality portfolio to outperform the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk. It has outperformed the broader market year after year, consistently.

While Snowflake offers high growth, we think it comes with considerable risk at current prices. What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus about 55% for the S&P 500. Comprising companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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