Without semiconductor and chip companies, we would not have the technology that we have today. That seemingly makes Intel (NASDAQ:INTC) a rather valuable entity, and in many observations, it is. But that does not make INTC stock a buy.
Intel helps power many of the computers and devices we use today. After all, it didn’t become a $250 billion entity for being second-rate. No, the truth is that Intel has built and continues to build some very critical components.
However, it’s also true that the company has made some massive mistakes. Missing timelines and allowing others to close — then widen — the performance gap has left Intel in a difficult place.
Simply put, there are better options than Intel for investors looking to buy stocks in the chip space.
The Growth Just Isn’t There
When Intel last reported earnings, it delivered a top- and bottom-line beat. Earnings of $1.42 per share easily beat expectations of $1.04 per share, while revenue of $19.8 billion beat expectations by almost $2.5 billion despite declining 1% year over year.
Those were solid headline numbers, even though INTC stock tumbled on the report.
Interestingly, the company’s Q1 guide was pretty good, too. But that didn’t stop the stock from shedding 14% over four consecutive losing sessions. The truth is, even though guidance topped expectations, the growth just isn’t there.
Consensus estimates call for a roughly 7% drop in revenue this year and flat revenue growth in fiscal 2022. On the earnings front, analysts expect a roughly 10% decline to this year’s estimate of $4.75 per share. That’s after 4.6% growth in 2020 from $4.72 a share in 2019.
In essence, analysts expect Intel to generate profit that’s roughly in-line with what it did two years ago. In 2022, estimates sit at just 2.3% growth. Stagnant.
At the end of the day, these are just estimates — they change constantly and can be wildly off despite having coverage from dozens of analysts. However, stock performance is tied to what investors think the company will do in the future.
For now, they don’t expect much from Intel and thus, INTC stock has been a difficult one to own over the years.
Little Demand for Intel
When value investors look at Intel’s stock, they see a name trading at 13 times earnings. They also see a stock paying out a 2.3% dividend yield.
However, I see a value trap. I would much rather pay a higher valuation for a company that’s continually exceeding growth estimates and has multiple secular growth opportunities.
Take Nvidia (NASDAQ:NVDA) for instance. The stock comes at a higher valuation, but shouldn’t a premium asset come at a higher cost? The coronavirus pandemic has accelerated demand for Nvidia’s products. Combined with the strong demand that was already in place and Nvidia has seen years worth of pull-forward in its business.
Case in point, what analysts were once expecting as future revenue in 2022, the company has already surpassed (and rather easily at that). It has strong growth too, with estimates for both earnings and revenue growth sitting at about 30% this year.
Rather than collect a modest dividend and pay a dirt-cheap valuation, I’d rather be investing in companies with robust growth. Simply put, Intel doesn’t have that.
Bottom Line on INTC Stock
At some point, almost anything can be a bargain. When INTC stock was changing hands in the mid-$40s, that was the bargain. It has been that way for years, really. Take a look at the weekly chart above.
Where does support almost always come into play? It comes in at $43 to $45. And it does so consistently.
Even if INTC stock were down around these levels, I wouldn’t be that attracted to it. That’s because it would still be forecast to generate stagnant or negative growth. However, one could make a better case for it below $50 than when it’s above $60, like it is now.
Of course, it’s possible that Intel maintains its recent momentum and pushes toward $70. However, after declines in other faster-growth chipmakers — like Nvidia — I’m more inclined to buy the dips in these names than hang my hopes on Intel stock.
Perhaps Intel can turn things around. At some point, I think it will. Its new CEO may be able to accelerate the timeline of certain products and help undo the pain of other delays, like its 7nm chips.
But for now, other names simply look more attractive.
On the date of publication, Matt McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article held a long position in NVDA.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.