Intel Stock Looks Fully Valued, but Stealthy Growth and Value Remain

Many analysts on Wall Street have a mixed view on Intel. After all, Intel has lost so much ground in the smartphone and tablet computing space that Qualcomm Inc. (NASDAQ: QCOM) now has almost exactly the same market cap as Intel. Both are worth right at $124 billion. The big difference here is that Intel has almost twice the revenues of Qualcomm.

Intel is so unloved that its 3.8% dividend yield means it almost certainly will be a key member of the Dogs of the Dow for 2014. Qualcomm yields almost 2%, and it is on a path of returning cash to shareholders in a way that mirrors that of Intel, up until a year or so ago, with dividends and buybacks.

Barron’s had Intel moving up to $30, based on one firm’s target in this last weekend’s 2014 outlook. What is amazing is that Barron’s highlighted Intel earlier in 2013 as moving up to $30 over the next year or so, and ultimately much higher than that.

What we still view as underappreciated assets are Intel’s dominance in processors for PCs. As gung-ho as everyone is on tablets and smartphones, you would think that Intel’s PC business is valued at zero. Intel is still in the first inning of its tablet and processor emergence. Intel also has so much excess domestic capacity that it is becoming an outsourced chip manufacturer for other chip-makers. It is very hard to get too crazy about Intel on a growth story in 2013, and maybe not even so much in 2014.

At 13 times expected 2013 and 2014 earnings, and with a monster dividend, Intel could shine if the market is a bit more normal in 2014 (normal as in no 26% S&P 500 gains).

We still feel that Intel could run to $30 in the next year and a half, with much more solid gains ahead, once its growth initiatives begin to normalize into solid predictable numbers.