Intel: a cheap defensive cash flow machine


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Tech stocks are in free fall. Of course, the damage isn’t that bad on the Nasdaq 100 Index, which has fallen 8% from recent highs. However, below the surface, speculative growth stocks are killed. Cathie Wood’s ETF Arche Innovation (NYSEARCA:ARKK), for example, is down 32% from its peak. In the midst of these sales, tech investors are looking for security. And few companies meet this standard better than Intelligence (NASDAQ:INTC) Stock.

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Intel has underperformed technology stock indices in recent years. It is seen, for good reason, as a slow and fairly cumbersome company that has been overtaken by more nimble competitors. However, people who write it prematurely will be surprised. Intel is still a dominant company that generates huge profits and will shelter investors when the markets turn sour.

The semiconductor boom

The price of technology stocks has skyrocketed in recent years. This is doubly true for semiconductor companies in particular. The industry has seen an incredible increase in demand. This is due to various factors, such as cryptocurrency mining, the increasing use of smart connected devices such as home appliances, and the lack of sufficient investment in the semi-auto sector in recent years.

Now add in the pandemic and the ensuing chaos in the supply chain, and semiconductor companies have historically been in good fortune. Unfortunately, their share price already explains all of this… and more.

INTC stock: a cheap option in an overheated industry

To consider AMD (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA). Since 2015, AMD has gone from less than 1 times sales to 9 times sales. Nvidia, meanwhile, went from 5x revenue to 23x revenue over the same period. Maybe these companies have improved so much in that time that they are worth five or ten times more per dollar of revenue than they were before. In all likelihood, however, they did not.

Based on earnings, NVDA stock now targets 73x rolling earnings. It’s incredible. We are near the peak of the semiconductor demand cycle. As if that weren’t enough, cryptocurrencies such as Ethereum (CCC:ETH-USD) are configured to move to proof-of-stake mining algorithms that will eliminate much of the demand for graphics chips.

Intel, on the other hand, sells for less than 3 times revenue. Its valuation ratios have not swelled dramatically in recent years. This is because the INTC stock is trading at around 11 times earnings, which is downright cheap in this market. Although the company has seen technical stumbles in recent years, business is still stable and analysts see it returning to pure growth in 2023.

Intel’s situation is much better than people think

Intel has shed market share in both data centers and personal computer chips in recent years. The company failed to meet the necessary technical specifications on several fronts, leaving AMD in particular to regain its momentum.

However, traders greatly overestimated the extent of Intel’s problems. Its revenue has grown each of the last five years through 2020. While 2021 is likely to be a year of decline, it is expected to return to growth in the near future. The company’s profits have also grown sharply in recent years, despite the company’s high-profile technical issues.

In fact, in 2020, Intel generated $ 35 billion in operating cash flow and $ 23 billion in operating income. These two figures represent records for Intel in a year. AMD, on the other hand, generated just $ 1.1 billion in cash flow and $ 1.4 billion in operating income for full year 2020.

Although Intel is ten times more profitable and cash flow generator than AMD, it sells for a 50% higher market cap. Notably, Intel also spends $ 13 billion a year on research and development, compared to just $ 2 billion at AMD. Over time, avoid relying on the dominant player with a huge advantage in terms of scale, profitability, and research capacity.

Verdict Stock INTC

For traders who believe the current growth correction is almost over, Intel is not the best buy today. Intel won’t be a stock that could possibly double or triple in six months. However, if you’re looking for a more defensive name that can hold its own if the current sell-off turns into a total collapse, INTC stock is a good choice.

The company’s large and predictable cash flow insulates it from short-term shocks. It pays a healthy dividend. Its research and development budget is enormous, which gives it sufficient firepower to develop new industry-leading products. And its various other businesses, such as autonomous vehicle technology, offer an attractive advantage beyond the core business.

As of the publication date, Ian Bezek was long in INTC. The opinions expressed in this article are those of the author, submitted to Publication guidelines.

Ian Bezek has written over 1,000 articles for and Seeking Alpha. He also worked as a junior analyst for Kerrisdale Capital, a $ 300 million New York-based hedge fund. You can reach him on Twitter at @irbezek.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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