Intelligence (NASDAQ: INTC) started 2021 with a bang, with shares of the chip giant accelerating in the first quarter of the year thanks to news that it could gain ground against rival Advanced micro-systems (NASDAQ: AMD). However, Intel was unable to maintain its impressive momentum and the stock foregone all of the gains it had made earlier in the year.
Intel shares are now trading near the low end of their 52 week range. Wall Street also doesn’t seem overly bullish on the company’s outlook, as the stock has an average price target of $ 54, which suggests a slight rise from current levels.
Given the challenges facing Intel, investors will likely think twice before buying it, while existing investors might consider cutting their losses by selling the stock. Let’s look at both sides and see if it makes more sense to buy or sell Intel stock.
Reasons to sell Intel shares
The main reason investors may want to sell Intel is the company’s lack of competitive advantage, which has resulted in moderate revenue growth and erosion of margins over the past three years.
Intel was forced to lower the price of its chips to compete with AMD, as customers flocked to Chipzilla’s rival in the x86 processor market. This is reflected in Intel’s latest quarterly performance, with its non-GAAP revenue growing only 5% year-over-year in the third quarter to $ 18.1 billion.
AMD, on the other hand, is in a searing form: its third-quarter revenue grew 54% year-over-year to $ 4.3 billion, thanks to growth across all of its business segments. In addition, AMD has also increased its annual forecast and plans to close 2021 with revenue growth of 65%. Intel’s forecast non-GAAP revenue of $ 73.5 billion would translate to an average single-digit decline from revenue of $ 77.9 billion a year earlier.
Worse yet, analysts don’t see a turnaround in Intel’s fortunes in 2022. Company revenues are expected to remain stable, while earnings are expected to decline to $ 3.70 per share, from $ 5.28 per share this year. year. Long-term forecasts also don’t look bright, as Intel’s earnings are expected to show a compound annual growth rate of just 3% for the next five years.
All of this indicates that the Intel stock could continue to underperform. That’s why investors might find it prudent to put their money in other fast-growing semiconductor stocks that might offer a bigger upside.
Reasons to buy
There are three reasons why Intel shares appear to be worth buying despite gloomy forecasts by analysts.
First, the company pays a nice dividend. Intel has a 2.8% dividend and a payout ratio of less than 27%. Intel paid $ 1.4 billion in dividends in the third quarter, which was easily covered by its $ 9.9 billion operating cash flow. The company paid out $ 4.2 billion in dividends in the first nine months of 2021, compared to $ 12.6 billion in free cash flow during the same period. Since Intel’s dividend looks secure, it could turn out to be a good retirement stock.
The second reason to buy Intel is its cheap valuation. The stock has a price-to-earnings ratio of just 9.5 and an expected price-to-earnings ratio of 13.5. The low multiples are not surprising, as the chip giant’s revenue and earnings outlook appears to be weak for the coming year. Still, cheap multiples could attract investors looking to buy a potential turnaround candidate, especially since Intel will reward patient investors with a good dividend.
This brings us to the third reason why investors may consider betting on Intel stocks now – the possibility of a return. Intel has decided to roll up its sleeves and increase its capital spending in the coming years to become more competitive. The company is forecasting $ 25 billion to $ 28 billion in capital spending in 2022, which explains the lower results next year. Planned spending would be a huge jump from this year’s spending of $ 18 billion to $ 19 billion.
It’s also worth noting that Intel’s latest Alder Lake processors give AMD’s processors good value for money according to third-party testing. Alder Lake’s chips are made using Chipzilla’s 10-nanometer process, which is AMD’s 7-nm fabrication node.
Given that Intel has established an aggressive product roadmap for the next two years, it wouldn’t be surprising to see the company regain its competitive edge. So Intel’s potential turnaround, cheap valuation, and good dividend could help attract investors, as it could turn into a growth stock, assuming its product development moves pay off and that he finds his mojo again.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.