The chip sector has been among the more volatile segments of the stock market. Intel (INTC) has not been immune to the volatility, though these shares have held up better than other players in the semiconductor group, asserts Chuck Carlson, editor of DRIP Investor.
The shares dipped following the company’s fourth-quarter results, as Wall Street was a bit concerned about the guidance for 2019.
It was not a surprise that business might slow a bit in 2019 following strong gains in 2018, and I believe the company’s long-term secular growth story remains in place. Yielding 2.5%, the stock remains a high-quality play for growth and income and is a buy.
Intel is a major provider of semiconductors for a host of technology markets. The company’s legacy business is the PC-related market, and this segment continues to show surprising resiliency. PC-related business was up 10% in the latest quarter.
It is likely the PC market may slow in 2019, but Intel has carved out positions in other areas of the tech sector, most notably its data-centric business. This business grew 9% in the quarter, with cloud-related business up 24%.
Overall, per-share profits in the quarter were up 18% to $1.28, $0.06 ahead of analysts’ estimates. Revenue rose 9% to $18.66 billion but missed the estimate of $19.02 billion.
Guidance for the first quarter of 2019 and year overall was a bit muted. The firm is expecting basically flat revenue and per-share earnings in the first quarter and a revenue gain for the year overall of around 1%.
That is a deceleration in the revenue rate from 2018 and reflects expected slowdowns in data-centric business, where customers are digesting big investments made over the last year.
A slowdown in China will also impact results, especially in the first half. Intel looks for a better back half of the year and is confident the long-term growth stories for cloud and data are intact.
Intel’s growth continues to fund dividend expansion. The firm recently raised its payout 5%. Growth in cash flows is also providing opportunities for expansion. The firm recently raised its payout 5%. Growth in cash fl ows is also providing opportunities for expansion via acquisitions.
The firm’s Mobileye acquisition looks like a winner, as revenue in this segment — which focuses on chips for the auto sector, including self-driving cars — was up 43%. The company is reportedly bidding for Israeli chipmaker Mellanox.
Trading at just 11 times the company’s 2019 earnings guidance of $4.60 per share, the shares are hardly richly valued. I’m comfortable with 2019 being a breather of sorts for the firm and view any price declines as attractive opportunities to add to these shares.
Please be aware that Intel offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company. Minimum initial investment is $250. The firm will waive the minimum if an investor agrees to automatic monthly investment via electronic debit of a bank account of at least $50.
