Image Source: Thomas Cloer
Last October, we wrote that “Intel May Have a Breakout Year in 2016,” and despite the rough start to the year, our thesis continues to progress nicely. Here’s what we wrote several months ago:
Part of the reason why we like Intel (INTC) is that many continue to dismiss the firm’s entrance into the mobile market, an area traditionally dominated by Qualcomm (QCOM). It is widely-accepted that Intel’s research and development prowess has nearly put AMD (AMD) out of business, and we’re confident the chip giant’s resources and innovation track record will open the door to the mobile market in a big way. In March (2015), it was reported that Intel’s technology will find its way into Apple’s (AAPL) smartphones, and the runway with the iPhone giant is very long.
Some estimates suggest that “Intel may capture half of all modem chips powering the upcoming iPhones, which could amount to as much as $1.25 billion in additional revenue.” We’re expecting 2016 to be a break-out year for Intel, as investors begin to factor in an even more promising 2017, in our view. The Microsoft (MSFT) Windows 10 PC upgrade may end up just being icing on the cake if Intel’s work with Apple flourishes.
Today, we’re hearing that Intel has won a portion of Apple’s iPhone 7 baseband modem orders, a share capture from Qualcomm that had been part of our thesis on why Intel remains a core position in both Valuentum newsletter portfolios. Though expectations are that the new business will be a modest positive for Intel, that it may bump the top and bottom-line 1%-3% higher is still good news. Certainly the loser is Qualcomm, and while we think shares of the cash-rich rival are attractive, the business momentum is clearly with Intel, and we don’t expect that to reverse anytime soon. Though its Data Center Group performance hasn’t been as strong as we would like, there is “Lots to Like About Intel’s 2016: 3D XPoint and Altera!”
Intel has a fantastic dividend yield (~3.4%) and a solid Dividend Cushion ratio (2.3). We value shares at $38 each, and the company garners a full (5%+) weighting in the Dividend Growth Newsletter portfolio and a half-weighting (~2.5%) in the Best Ideas Newsletter portfolio. Intel’s total cash investments of ~$25.3 billion at the end of the year offer a tremendous amount of financial flexibility (~$2.5 billion net cash position), and free-cash-flow generation remains top notch. We may look to add to the position in the Best Ideas Newsletter portfolio on strength.