Intel’s investment in future belies current revenue slump
Intel (Nasdaq: INTC) stock hasn’t exactly been on fire lately. Some think the stock should be sold due to the company’s flagging revenue growth, its dependence on a weak PC market for much of its business and softness in prices for its wares.
The company still has a lot going for it, though, and much to offer investors. For one thing, it has been spending heavily on research and development (we’re talking more than $10 billion annually) and building a bigger position in the fast-growing mobile device sphere and other arenas.
For example, it has been partnering with others to develop offerings for the health care market, such as home-based health technologies and computing systems for hospitals. It’s even looking at the TV business, with its OnCue service offering viewing options over broadband Internet connections. Some think Intel has a chance of reviving the PC market with its new Haswell chip, which boosts battery life considerably.
Finally, consider the company’s dividend, which will pay you handsomely while you wait for business to pick up. It recently yielded 4.1 percent, and the company has been hiking its payout by more than 10 percent annually, on average.
Intel is too big, too rich and too forward-thinking to be forgotten. (The Motley Fool owns shares of Intel and its newsletters have recommended it.)
Ask the Fool
Q: I’ve heard I should invest in stocks for the long term. But how long is that? – C.R., Pensacola, Fla.
A: It’s good to shoot for at least several years, if not many years – as long as the company remains healthy and growing at a good clip, and as long as its stock price hasn’t gotten way ahead of itself. Many fortunes have been built by people who stayed invested in solid stocks for decades.
Keep taxes in mind, too, because long-term capital gains are generally taxed at a lower rate than short-term ones – 15 percent for many of us, vs. our ordinary income tax rate for short-term gains. For Uncle Sam, long term is at least a year and a day.
Q: I’m considering investing in a company that seems to be doing everything right: Sales and earnings have been growing at double-digit rates and there’s no debt. And yet the stock keeps falling. Am I missing something really obvious? – E.D., Green Bay, Wis.
A: Maybe. You need to look more closely. Even steep growth rates may be lower than previous levels. Check out expectations, too. If the company and/or Wall Street analysts expect slower growth in the future, that can dampen enthusiasm for the stock, sending it down. Perhaps competitors are fast advancing on the company, or questions have been raised about its management or offerings. For investors, the company’s future matters more than its past.
Then there’s the stock price itself. Because the company has grown briskly, investors may have bid up the stock to lofty heights, well above its intrinsic value, and the price may now be settling back to more reasonable levels.
Always look at a company’s big picture.
My dumbest investment
One investment that looked like it would be my dumbest was in a company with promising technology that developed renewable and synthetic fuels. It could convert feedstock into synthetic diesel and jet fuel, for example. It was doing business with the military and seemed quite promising, but had trouble getting to full production capacity and producing on a large scale.
Worst of all, it conducted a 1-for-10 reverse split of its stock in order to prop up its price and not get delisted by the Nasdaq Stock Market. The stock has rebounded lately, though, so my pain has eased. – L.S., Virginia Beach, Va.
The Fool responds: This is a good reminder that while a company might have a terrific technology, product or service, it might not be a great investment if it can’t win in the marketplace and deliver robust growth. This company was a penny stock for years and has been quite volatile. It’s smart to be wary of stocks trading for less than $5 per share and ones with more promise than profits. Your company has considered putting itself on the market.