Hot Stock: Intel

Chip-maker turning a corner.

It’s been a long time since Intel (NASDAQ: INTC) was the semiconductor stock to own. On May 13, market research company IC Insights reported that while the Santa Clara company is still the largest microchip company by revenue, it’s losing market share to mobile chip manufactures, such as Samsung and Qualcomm.

Investors have moved on to other technology companies too, such as Apple and Facebook and sales of computers, which used to be Intel’s bread and butter, are slowing. Its share price is down 11.7% over the last 12 months.

While it may seem like this stock is passé, a number of analysts still think it’s a great buy. It’s trading at about $24 today, but a number of 12-month price targets are in the $28 and $29 range.

It may seem strange, but one of the main reasons to buy the stock is precisely because its computer business is declining. The poor numbers—some analysts predict a 5% year-over-year drop in PC sales—have made the stock cheap. It’s trading at 11.9 times earnings, which is below many other tech companies and far lower than where it was trading in 2000.

The bad news is also accounted for in the stock price. If sales continue to fall, it’s unlikely Intel’s share price will plummet further. That wouldn’t have been the case a few years ago. Doug Freedman, an analyst with RBC Capital markets, wrote in a May 6 report that while PC sentiment is at all-time lows “we see little downside from current expectations.”

For the people who like the stock, it can only get better from here. Intel has made significant inroads in the mobile space and, says Freedman, that’s where its future lies. “Traction in mobile is upcoming,” he writes. “We feel that even ahead of a more compelling leading-edge… line-up in 2014, Intel is today receiving a lot of interest from (manufactures).”

He’s especially bullish on its ultrabook products—a computer that’s similar to a Macbook Air—saying that its 2014 “ultra-mobile platform may be their best yet.”

Daniel Berenbaum, an analyst at MKM Partners, also thinks these lightweight computers, which are equipped with its faster and more power efficient Haswell microprocessor, will do well. There’s no guarantee, of course, but, in a May 7 report, he wrote, “we see a good chance that these new form factors will help short-circuit the bear argument that ‘the PC is dead.’”

Another plus is its new management. On May 16, Brian Krzanich will become CEO, while Renee James will take over as president. Both have a long history at Intel. As the company’s COO, Krzanich has done a good job of increasing output and lowering costs. James ran the company’s software division, which had nothing to do with microchips, so some people are viewing her appointment as more proof that Intel is willing to try new things. “(The hire) implies that the company is not unwilling to look outside Intel’s traditional core strengths for growth,” writes Berenbaum.

These days, Intel is a slow and steady grower. Berenbaum expects revenues to grow by just 1.5% in 2013 over the year before, but thanks to its focus on mobile he thinks revenues will increase by nearly 9% in 2014.

That slow growth should be fine with many investors. With a 3.77% yield, it’s perfect for income-seeking retirees who want to own stable, divided-paying large-cap companies that have the potential of generating modest capital gains. And who knows, if its mobile business takes off, people might start talking about this company again.

For more investing insights follow Bryan on Twitter @bborzyko.