Intel Corporation (INTC): Can an Exciting Development Bring this Chip Maker Back to Life?

It’s all about mobile

The financial media has essentially made up its mind that the PC is officially dead, and that investors would be better served buying stock in Qualcomm (NASDAQ:QCOM) or Broadcom (NASDAQ:BRCM). The investing thesis here is that Intel has fallen too far behind the trend away from desktop and laptop computers.  However, you would be well-advised not to write off Intel completely, as it finally appears the company is making progress in mobile.

To be fair, both Qualcomm and Broadcom are good companies.  Qualcomm revealed in its 2012 annual report, that revenue and diluted earnings per share increased by 27% and 39%, respectively.  The company has raised its dividend by more than 12% compounded annually over the last five years.

Broadcom saw full-year fiscal 2012 sales growth of more than 8%, although profitability is an ongoing concern after the company revealed diluted earnings per share decreased by almost 25% year over year.  To soothe investor concerns, Broadcom raised its dividend by 10% in January.  Even with these increases, the stock only yields 1.3% at current prices, and the stock carries a rich valuation of more than 27 times its 2012 diluted earnings per share.

The Foolish takeaway

If Intel were to finally make meaningful progress on the mobile chip front, the investing opportunity would be abundantly clear.  Intel is trading very cheaply by most valuation measures.  Despite the uproar about the company’s supposedly terrible quarter, Intel still 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.

Effectively entering the mobile market would be a boon for Intel and the positive catalyst that might finally result in multiple expansion instead of multiple contraction.  While Intel might not command the same valuations as Broadcom or Qualcomm, you’d have to think the market would meet somewhere in the middle — likely at a higher P/E ratio than where it is currently.  For the time being, investors willing to take that chance are offered a 4.5% dividend yield to wait for this to take hold.

The article Can an Exciting Development Bring this Chip Maker Back to Life? originally appeared on Fool.com.

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