Monday, October 18, 2010

New position: Intel

Today I opened two new long positions: Intel and Noble Corporation which I will discuss later.

Intel is probably the next best thing besides owning a monopoly. However, the chip-making giant is now so big that it's hard to grow much bigger. Therefore, in no way it can be thought as a growth play. To me it's both a defensive value play as well as a dividend play.
Picture: Intel i5 processor (source Wikipedia / Qurren).

It has some 20.3 billion in cash and cash equivalents ($3.65 a share) and operational cash flow in range of 11 billion a year. Management is authorized to spend 5.7 billion on buying back own shares. Currently Intel pays out quarterly dividend of 15.75c which is roughly 3.3% yield at $19.2 a share. Intel has very low debt to equity ratio so it is really a cash cow. In addition, it has amazing pricing power and huge technological edge to all competitors.

There are not many companies left that can build manufacturing lines by themselves for the nanometer scale structures needed in the state of the art processors. These factories require huge amounts of knowhow, skill and money to build and operate successfully. Simply put: Intel has moat (competitive advantage) like no other technology company in my opinion.





At P/E 10.3 and P/CF 7.75* I think Intel is a pretty good catch. If it still grows, it will be only a bonus.


*) P = quote minus cash & equiv. per share

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