One question you need to ask before investing in INTC Stock
Interest in semiconductor stocks is rising with Congress’s impending passage of a $52 billion chips bill. One company that is grabbing some attention is Intel (Nasdaq: INTC,,
On the surface I can understand why. Intel is trading at a low price-to-earnings (P/E) ratio around 6.6. And because the company is making a major investment to bring semiconductor manufacturing to the United States, Intel Stands for more advantage than many other chip makers.
That being said, Intel’s return on investment is years away, and the semiconductor boom cycle of the past few years seems to be coming to an end. This means that before investors consider diving into INTC as an undervalued stock, they should ask themselves a question.
a terrible income report
Before I get to that question, it’s impossible to ignore the company’s earnings report, which came out after the market closed on July 28. The company reported earnings per share (EPS) of 29 cents, down 58% from a forecasted 69 cents. And the top line was also coming in 14% with revenue of $15.32 billion, falling below forecast of $17.93 billion. This is affecting the shares of INTC which are down more than 10% since the release of the report.
52 billion reasons to be excited
The US Senate recently passed a $52 billion chip bill. This would benefit semiconductor companies that build manufacturing facilities in the United States. As Bloomberg reported, “The law includes funding for research and workforce training as well as 5G wireless technology. It also includes a 25% tax credit for semiconductor manufacturing…”
with intel Texas Instruments (NASDAQ: TXN, And Micron Technology (Nasdaq: MU, Manufactures own chips. Therefore, these companies benefit more from this bill than some other chip makers. And Intel may benefit more than the rest.
That’s because in January, Intel announced plans to build a chip manufacturing facility in Ohio. This will be in addition to two facilities built in Arizona over the past several years. The total investment in the Ohio plant could be up to $100 billion.
Chip demand may be slow
Semiconductor demand has historically run in boom and bust cycles. It just so happens that 2020 has had an almost unprecedented demand cycle. The demand for chips was already high in areas such as data centers, consumer electronics, and automobiles in both the internal combustion and electric varieties.
But the chip industry was affected by the pandemic as much as other industries causing chip shortages that are still being resolved. That is until the consumer resolves it for them.
According to the Gartner research group, demand for semiconductor chips is slowing down at a faster rate than expected. To make matters worse, the firm now believes that demand will begin to decline in 2023.
The demand destruction is especially true in a sector such as the personal computer (PC), for which Intel relies for a considerable portion of its business. This was expected as more workers returned to the office and, in any event, companies had already spent money on equipping their remote workforce.
However, this brings to light the fact that Intel does not have a significant market share in the data center and automotive sectors that continue to show strong growth.
Is the dividend enough?
So I’ll finally get to the question I posed earlier. And that’s just one dividend enough to keep your interest?
Analysts are forecasting single digit revenue growth in the next five years. This means investors will want to get a dividend to hang on to the stock. Here again, Intel looks attractive. The company pays $1.46 per share on a yearly basis. This calculates to a 3.68% dividend yield. Intel has increased its dividend in each of the last eight years.
But is that enough to get investors excited? I’m not sure, especially because if Intel can’t figure out a way to slow or reverse the decline in earnings, its dividend growth could be in jeopardy. But for now, dividends are something for investors to consider before buying what could be a fundamentally attractive stock.
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