Leo Fasciocco is a technical expert focused on both long and short ideas that are based on breakouts...
Intel Share Price Soars—Is Dividend Hike Next?
06/13/2014 4:45 pm EST
Today, shares of this tech company's stock soared on news of an improved PC sales forecast, and MoneyShow's Jim Jubak feels the stock price still has further to climb, so he's raising his target price as of today, June 13.
Shares of Intel (INTC) have soared today after the company raised its guidance yesterday for second quarter sales. The stock is up 6.7% to $29.83 a share as of 3:30 PM New York time today. Intel is a member of my Dividend Income Portfolio.
Sure the capital gain is great—Intel's share price is up 58.5% since I added it to this portfolio in September 2010.
But the surge in price has knocked the dividend yield to 3.1% from 3.3% in April. And this supposed to be a dividend income play.
Sell on the gain or hold?
Intel has done a good job in recent years of increasing its dividend payout as the share price climbed. We're roughly on schedule for another dividend announcement in the next week or two. I'd certainly hold on through that and see what the company has to say. Whatever the company says about dividends, though, I think this stock's price has further to climb. I'm raising my target price to $34 a share by December from the current target of $32 by November 2014.
Yesterday, Intel said that it now expects second quarter sales of $13.7 billion. That's a jump from the $13 billion in sales the company forecast back in April. Annual sales, Intel projects, will grow for the first time since 2011. Gross margin will climb to 64%, or 1 percentage point higher than it had last projected for the quarter, on higher PC unit volume.
The big reason is an improvement in sales of traditional PCs. Sales dropped 10% in 2013 and while market researchers IDC and Gartner are still projecting a drop in PC shipments for 2014, they're now forecasting a smaller decline. IDC, for example, is now projecting a 6% drop in worldwide shipments. (The bad news is that IDC sees growth in PC shipments staying negative until 2018.)
From what market researchers can see, it looks like corporate users have finally decided to replace their older PCs at a higher rate. A significant contributor to that trend is Microsoft's decision to no longer support its long-in-the-tooth Windows XP operating system. That replacement cycle doesn't fix the long-term problem of users moving from desktop machines to tablets and mobile devices and Intel still has to improve its penetration of those markets. But this kind of short-term news still helps.
Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I managed, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund shut its doors at the end of May and my personal portfolio is now in cash. I anticipate putting those funds to work in the market over the next few months and when I do I'll disclose my positions here.
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