Intel: A no-brainer buy

The tech giant has all the attributes of a long-term winner. Perhaps that's why Warren Buffett owns 9.3 million shares.

By TheStockAdvisors Dec 2, 2011 2:02PM
By Paul Tracy, Street Authority Market Advisor

It has become one of my favorite stocks. I like to call it my "no-brainer" investment for 2012. The company is buying back billions of its stock.

It's raised dividends at a torrid pace over the past five years. And it just announced its sixth consecutive quarter of record sales. I'm talking about Intel (INTC).

As the world's largest semiconductor maker, it holds an 80% stranglehold on the PC semiconductor market. No one else even comes close.

Some people may see the stock as boring and say that it hasn't gone anywhere for years. But I see something different, and I think Warren Buffett sees the same thing; Berkshire Hathaway (BRK-B) has taken a 9.3 million-share stake in the stock, a position worth over $200 million.

Simply put, Intel's shares are becoming more valuable quarter after quarter, but the share price hasn't responded yet.
  • Intel is in the middle of an enormous share buyback spree. Over the past year, it has spent $11.5 billion to purchase 538 million shares. It still has $14 billion allocated to future buybacks -- that's more than 10% of the outstanding stock.
  • The company holds more than $15 billion in cash on the books. That comes out to $2.97 per share... more than 11% of the current share price.
  • Quarterly dividends have increased from 10 cents a share five years ago to 21 cents today -- growth of 110%. And in the last two years, dividends have grown 50%.
  • Right now, Intel's shares trade near the same level they did back in the spring of 2010, when earnings were just $1.09 per share during the previous 12 months. But today, earnings over the last year total $2.31 per share -- more than 100% higher.
It doesn't take the expert investing skills of Warren Buffett to see why Intel could go higher in the months and years ahead.

But there's another reason why I like Intel so much. After years of research, I've found that more often than not, companies that fit within a few simple categories are the ones that make you the most money long-term.
  • Companies that enjoy huge (and lasting) advantages over the competition.
  • Companies that are buying back massive amounts of their own stock.
  • Companies that pay investors each and every year by dishing out growing dividends.
Intel fits all these characteristics perfectly. It's why I think it's a "no-brainer" investment. Strong companies that take care of their shareholders tend to do better over the long-run. It doesn't take a Ph.D. to understand that.

Of course, investing is never a surefire thing. Even the seemingly strongest companies aren't guaranteed to deliver a positive return.

But that said, if you invest in companies with one or more of these three simple traits, then I think it gives you the best chance of making money.

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5Comments
Dec 2, 2011 4:50PM
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I wish I knew when the big stakeholders buy/sell their shares.
Dec 4, 2011 12:31AM
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The biggest growth potential is actually in mobile. Intel does not have a very good share of the mobile market right now. There is tons of room for growth with people buying phones left and right and upgrading constantly.

That said, I just sold all my shares of Intel. Yes, they are still buying back but

1. just because there is an allocation to buy back doesn't mean the company MUST follow through. Look back at the history of announced stock buy backs. How many companies announce a buyback and actually complete it to a level 100% of what they announced? It isn't many.
2. Even if they complete the buyback, I doubt it helps the price too much. The stock already has that knowledge placed into the price.
3. The stock is near the 52-week high which is hardly ever a great time to buy but it is usually a great time to sell.

I could be wrong. The price could continue to climb but I won't care. I sold and made 20% counting the nice dividend. I did it in less than 12 months. Can't go wrong locking in those gains.
Dec 3, 2011 2:59PM
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The growth potential is in emerging markets whose populations dwarf the mature economies. Factually, most Americans have more income annually and are likely to follow evolutionary trends in computing such as the transition to portable computers [laptops, tablets] from box/monitor PC's.
I wouldn't touch any Asian semiconductors [lower margin processing/memory] as they will need to consolidate because of cyclical trends and Asian over capacity leading to uncertainty in their respective markets.
There in lies why Intel is a superior long term buy as they are number one in [central processing] semiconductor sales and r&d. They are investing heavily in tablet/phone architectures and their recent sales trends in those technologies will bolster their growth even more.
I don't for once fall for the CONTRIVED negative news about the global economy, especially our own. Most of it is political rhetoric, and a delight to hedge fund managers. Period.

Dec 4, 2011 2:01AM
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Company insiders have been exercising and selling Intel shares for the last two months. If they thought that the shares would go much higher, wouldn't you think that they would wait a while longer to exercise and sell their Intel shares at much higher prices. This very well could mean that the shares are not going much higher in the near future and could possibly go lower from here. This is just my observation and opinion.
Dec 2, 2011 5:00PM
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I don't think this is a good buy.  Where is the growth potential when you own a market?  Maybe in 2006 it would have been good, but I think its gonna top out now.  Especially with less income held by Americans, they would be less inclined to upgrade their PCs when processing usage has stalled over the last 4 years.  I would rather invest right now in Taiwan semiconductors.  Higher dividends and currently a low buy due to flooding.
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