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Accelerated Buyback is Just What the Doctor Ordered for Languishing Intel (NASDAQ: INTC)

Thursday, August 20, 2020 | Nick Vasco
Accelerated Buyback is Just What the Doctor Ordered for Languishing Intel (NASDAQ: INTC)Intel (NASDAQ: INTC) shares took a nosedive after the company reported Q2 2020 earnings a few weeks ago. The chip maker’s revenue increased 19% yoy in Q2, but investors shrugged off the sales numbers.

Instead, investors focused on the 12-month delay Intel announced in the development and release of the company’s 7 nanometer processors. CEO Bob Swan said that Intel expects to make its first shipments in late 2022 or early 2023.

Intel’s margin for error is low with AMD (NASDAQ: AMD) on its heels. AMD’s new Ryzen 4000 chips appear to compare very favorably to Intel’s Core i7-9700 vPro. AMD’s stock has rocketed higher, up more than 700% since the spring of 2018.

But Intel is trading at a much lower multiple than AMD that more than compensates you for the recent underperformance. Which means…

The Timing is Excellent on Its Share Buyback

Yesterday afternoon, Intel announced that it plans to accelerate its share repurchase agreement announced back in October, which called for the company to buy back $20 billion in stock. Now, Intel plans to buy back $10 billion of its own stock by the end of this year. The market cheered the news, sending shares nearly 4% higher in after-hours trading.

Share buybacks have gotten a bad name in recent years, with many considering them a way for greedy C-suite executives to cash in on lucrative stock options.

There is some validity to that argument, particularly when the cash can be put to better use – or if the company is taking on debt to fund share repurchases.

And if shares are trading at a ridiculously high multiple? It’s a bad idea to buy back the stock.

But share buybacks are a great move when there is reason to believe a company’s shares are undervalued. CEO Bob Swan said yesterday, “While the macro-economic environment remains uncertain, Intel shares are currently trading well below our intrinsic valuation, and we believe these repurchases are prudent at this time."

Swan’s Belief is Justifiable

Intel is trading at under 11x projected 2020 and 2021 earnings. AMD, on the other hand, is trading at around 74x projected 2020 earnings and 49x projected 2021 earnings.

Intel is trading at 2.7x projected 2020 sales and 2.8x projected 2021 sales. AMD is trading at 10.7x projected 2020 sales and 8.8x projected 2021 sales.

Now, AMD should certainly be trading at a higher multiple than Intel. It has more room for growth, and its chips offer a lot of reason for optimism. But consider that Intel’s revenue has grown at a CAGR of around 7% over the past five years, and its net income has grown at a CAGR of approximately 15% over the same period.

Yes, Intel’s share price is languishing. Its new processor is facing delays. AMD may have taken the lead (for now). But Intel is an excellent company with a long track record. 2020 is more likely to be a blip on the radar than the sign of an imminent collapse.

And with business holding up well during the pandemic, Intel has plenty of time to get its act together.

The Chart Isn’t Pretty

Even after today’s open, Intel will still be trading near its 52-week lows.

This is a stock that has spent a lot of time in oversold territory over the past few weeks. Furthermore, the 50-day moving average crossed under the 200-day moving average a couple of weeks ago, a bearish sign.

INTC is not a pretty chart, but the best value plays seldom are.

If you’re looking to get into INTC, but limit your downside, consider putting your stop-order below the recent lows of $46.65. That would be around 7% below today’s open.

Accelerated Buyback is Just What the Doctor Ordered for Languishing Intel (NASDAQ: INTC)

Shares could face a lot of resistance in the $55-60 range, but that’s 10-20% above today’s open. Ideally, INTC will run up to the mid-to-high $50s, consolidate for a couple of weeks, and then break out.

The Risk/Reward is Excellent on Intel

Intel was founded more than 50 years ago, which makes it a dinosaur in tech years. But that’s not a bad thing as the company has shown the ability to be an industry leader decade after decade in an always rapidly changing industry.

Again, I wouldn’t start digging Intel’s grave because AMD’s chips may be a little better for a year or two. Instead, I would bet on Intel getting its act together, and continuing to be a major player for decades to come.

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Intel (INTC)2.2$49.56+2.5%2.66%9.72Hold$57.83
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7 Tech Stocks To Buy On Sale

This too shall pass. Those four words should be taped to the computer screen of every investor. If you own shares of the tech sector, you’ve seen your portfolio take quite a hit. Tech stocks were largely immune from the effects of the pandemic.

However, as investors are looking to rebalance their portfolios, tech stocks were obvious targets for some profit-taking. And at the end of the day, that’s what I believe the latest tech selloff amounts to. Stocks don’t move in one direction all the time. Sure, there may be some saber-rattling about breaking up big tech. But with an election in less than two months, nobody will have the political will to do anything.

That doesn’t mean that it’s all going to be smooth sailing. Sure, the Federal Reserve did its part by promising low-interest rates until the end of time (or at least through 2023 whatever comes first). But the rest of 2020 is likely to be volatile for stocks.

First, there’s still the novel coronavirus hanging around. It’s not going to simply disappear after election day. That will take some combination of a vaccine and/or therapeutic. And all the likely candidates seem to be getting farther away the deeper into clinical trials they get.

And we have an election. But we are not likely to know the winner of the election on election night. In fact, for those who remember the spectacle of “hanging chads”, this election could make that one look like amateur hour.

The bottom line is there will be uncertainty. But there are always gains to be found, particularly now that their stock price has come down a little bit. Here are seven tech stocks that you can look to add or increase a position in now that they’re trading at a discount.

View the "7 Tech Stocks To Buy On Sale".

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