Investors looking for value at a considerable discount have plenty of reasons to consider a long position in Intel.
The following commentary comes from an independent investor or market observer as part of TheStreet's expert contributor program.
SANTA CLARA, California (TheStreet) -- Chip giant Intel(Nasdaq:INTC) continues to be one of a handful of stocks that I think investors would be wise to add this week ahead of the company's scheduled earnings announcement on Tuesday.
With a price-earning ratio of 11 and trading at $28, there is considerable upside potential by at least 25% towards my fair market value of $35.
Intel continues to suffer from a market that has turned its attention towards the new kids on the block - names that include ARM Holdings (Nasdaq:ARMH) and Nvidia(Nasdaq:NVDA). But astute investors should seize this opportunity to add to their positions as there is clear evidence that the company continues to be underappreciated for performances that would have placed lesser-known companies in higher regard.
Be that as it may, Intel does not appear bothered by the obvious lack of respect. Expectations for the quarter
The company just continues to churn out one good quarter after the next, and Tuesday will be no different.
In its most recent announcement, Intel reported a 6% increase in net income to $3.4 billion - a number that topped analyst estimates -- while also reporting revenue growth of 21% to $13.9 billion. As far as what to expect for the coming announcement, I'm looking at revenue between $12.3 billion and $13.3 billion, the range the company provided in terms of guidance.
From a "market pleasing perspective," I would expect the company to (at minimum) hit the $12.8 billion mark. While it would represent an 8% drop sequentially, it would further affirm my bullish sentiment as well as my $35 target.
This is despite the fact that gross margin is expected to decline by 1.5%. What I continue to find interesting is that Intel still does not get enough credit for having also become a "services company" - to the extent that it saw 7% growth in revenue in its last quarter. This is yet another area where it exceeds expectations and in which rivals are unable to compete.
Overall I am expecting an excellent quarter for the company, as it has been working extremely hard to remind Wall Street that it has not relinquished its ability to innovate and can yet produce solid growth in the high single-digits and generate gross margin at historical ranges.
To that end, Intel has been reinvesting heavily in its business as well as in R&D core capabilities like security and extending its process technology leadership. The latter initiative is one of the areas that has me extremely excited about the company's prospects not only for this year, but also well into the future. It will place Intel at a significant advantage to the extent that it will be able to leverage its current core of products and services beyond what it is traditionally known for and into areas that consumers can only imagine. Moving forward
There is no doubt that other chip names have recently caught the attention of Wall Street these days - some of which are rivals such as Qualcomm(Nasdaq:QCOM) (QCOM) and Texas Instruments(Nasdaq:TXN). As a result, Intel has become somewhat forgotten for "only" delivering what some analysts now consider "routine success."
As an investor in Intel and one that fully appreciates the market struggles over the past three years, I feel pretty confident in saying that the company's string of recent performances have been anything but routine and I look for Intel to build on the momentum established over the past couple of quarters. Bottom line
Even at its current 52-week high of $28.55, there are still many catalysts for the company and many reasons to be bullish. Not the least of which is that the stock remains incredibly cheap when compared to Qualcomm, Nvidia, ARM Holdings, which are all trading at much higher multiples.
Intel will undoubtedly log its best financial performance in 2012 and investors should expect the company to demonstrates continued strength in emerging markets, an increase from the explosion of smart phones and mobile devices as well as corporate and consumer migrations towards cloud infrastructures.
It remains abundantly clear that the company intends on maintaining its dominance among the semiconductors and has begun to lay down the foundation for its long term-success. For this reason, I continue to suggest that investors who are looking for value at a considerable discount have plenty of reasons to consider a long position in Intel.