This is why Intel is extremely undervalued…

Intel Corporation (NASDAQ: INTC) had a tough year last year. Sales slowed due to many corporations tightening up their spending as a result of uncertain economic conditions. However, when looking at the larger picture, it is very clear that the average consumer is using more and more technology and devices. Also, while Intel’s sales did slow a little last year they are still the stand out leader in the semiconductor industry and they continue to expand into other areas. Their latest branding of the term “Ultrabook” has allowed consumers to quickly see which laptops are the fastest and slimmest on the market.

With these facts in mind, I decided to do a multiples analysis to see if Intel’s stock was trading in line with the industry standards. In choosing Intel’s competition in the semiconductor industry I decided to use a more systematic approach, which included looking at the holdings of some of the larger semiconductor indexes and choosing the largest holdings. Notable competitors included: Texas Instruments (NASDAQ: TXN), Sandisk Corp (NASDAQ: SNDK) & Nvidia(NASDAQ: NVDA). These three companies continue to innovate and create new products, and while Intel is definitely a more mature company, they still have the ability and resources to compete and beat their competitors.

All three of these competitors are trading at substantially higher multiples then Intel. This could be due to them all being smaller companies then Intel and the market assuming that there is a larger growth opportunities for a smaller firm, however, I take this as a sign that the market is undervaluing Intel. See comparable’s table below:


I also completed a rough discounted cash flow model which confirmed the results of the multiples analysis. All signs point to Intel being an excellent value currently. This conclusion is strengthened by the fact that Intel is currently paying a +4% dividend and also given current macroeconomic conditions which seem to be improving.

The CES in Las Vegas began this week and it will be interesting to see what Intel has in the pipeline. The company continues to innovate and I have heard rumor of a device that will compete with Apple TV. Per my analysis, I feel confident placing a buy rating on Intel with a price target of $32.50.

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The Fiscal Cliff: Dodged….

Tonight our congress temporarily resolved the the fiscal cliff. While the deal may not have been the best deal that was to be had, it was a compromise and equity markets should rally heavily tomorrow. This will not be due to the deal that was struck, but more so due to the international economic strength that has been shown recently almost across the board. Most notably: Japan is engaging on an extensive easing program, US continues to ease and provide stimulus to the markets and China has picked back up.

One position I currently have which has been performing better then expected and should continue to do so is my Short Treasury Bond, Long Corporate and High Yield Bond thesis. This pair trade is speculating that the large spread between US treasury bond rates and corporate/high yield bond rates will begin to conform to historic standards. This position has been taken by using leveraged short treasury ETF’s including tickers TMV and TBT. The other side of this pairs trade has been composed by purchasing some high yield and investment graded corporate bonds through ETF’s including tickers JNK and VCLT.

All in all I am extremely satisfied with the performance of this trade and will plan on holding this one for at least the next few months as the process of closing this historically large spread may take some time. In fact, this may a be a position I will hold on to for over a year, but it all depends on how the market performs.

By the way, Happy New Year!