Despite the Shellacking, I’m Not Selling Intel Corporation (INTC)

While Qualcomm and Broadcom are both highly profitable companies with solid growth ahead of them, investors are paying a fairly steep price for that growth.  Trailing 12-month price to earnings ratios for Qualcomm and Broadcom are 18.5 and 27, respectively.  Intel, meanwhile, reported $2.13 in full-year 2012 earnings.  That means that at a price of $21, investors are paying less than 10 times trailing earnings.  It’s clear that the market has priced in little to no growth for Intel.  Even if fiscal 2013 profit drops 10%, you’re still only paying 11 times those earnings.  It seems to me that the bad news has been priced in to Intel shares.

Balance Sheet Provides a Cushion

Another area of strength for Intel is its fantastic financial position.  As of its last quarterly report for the period ended Oct. 31, the company reported a current ratio of almost 2 times.  Intel has more than $6 billion in cash and equivalents, compared to only $7 billion in long-term debt.  Intel has a long-term debt to equity ratio of just 14%.  The company’s long-term debt level was close to nothing before Intel sold $6 billion in long-term debt late last year to repurchase its own stock.  The bond market has been noted as being “smarter” than the stock market, and if that’s true, investors shouldn’t worry about Intel’s financial position.  Intel sold $3 billion in five-year securities that yielded 1.35%, only 75 basis points higher than similar-maturity Treasuries.  Amazingly, Intel was able to issue 30-year debt at just 4.25% — exactly equal to Intel’s current dividend yield.

Not Selling into Panic

It’s clear that Intel’s fourth quarter and full-year results were disappointing.  But after a 7% down day and a 27% decline from its 2012 high, the question needs to be raised whether the sell-off was overdone.  In my estimation, short-term margin compression and profit struggles aren’t enough to shake my belief that Intel will be a successful company for many years to come.  Intel raised its dividend 7% in 2012 and has doubled its dividend over the last five years. With an earnings yield of more than 10% and a 4.25% dividend yield, Intel will keep its place in my portfolio.

The article Despite the Shellacking, I’m Not Selling Intel originally appeared on Fool.com.

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