Why Intel Should Be in your Portfolio Now
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As Microsoft (NASDAQ: MSFT) continues to prepare for the release of Windows 8 in late October, buying shares of Intel (NASDAQ: INTC) may be the best way to gain exposure to the next hot thing in technology. While the buzz surrounding Windows 8 has been mild at best, when viewed in conjunction with some of the products that the operating system should inspire, it should prove to be a significant launch. This new breed of devices, largely powered by Intel chips, will look to close the gap between notebooks and tablets, giving real productivity to a class of products that have largely focused on consumption to date.
Intel’s Solid Base
In several basic yet critical ways, Intel has perfected its core competencies to make it an attractive investment option independent of the coming transition. The company is extremely well run, making solid choices and acquiring outside companies that represent critical synergies.
The end of 2011 marked a record-setting revenue year for the company at $54 billion of annual revenue. In addition, Intel has demonstrated its ability to manufacture with the type of consistency that makes it hard to compete against. While the company has fierce competition, few are able to deliver at such a steady level of quality. Lastly, with a dividend yield of 3.6%, the chip maker is truly a blue chip option with a solid income element. When U.S. Treasuries are yielding less than 2%, a dividend that roughly doubles government paper while providing similar safety is worth owning.
Amongst the new products that are anticipated for the new Windows 8, several are expected to be targeted at bridging the gap between tablet and notebook options. Microsoft’s Surface will be the company’s in-house answer to the tablet, adding the functionality of the complete Microsoft Office suite. Individuals should finally be able to do real computing while still enjoying the ergonomic appeal of a tablet. The general thrust of the concept is that while tablets are fun to “play” with, they are not serious computing solutions. Microsoft hopes that by creating a device that can offer the look, feel and fun of a tablet and the computing might of a notebook, it can redefine the space.
In addition to Microsoft’s own offering, both Dell (NASDAQ: DELL) and Hewlett-Packard (NYSE: HPQ) are at the early end of rolling out new hybrid devices. These products, being branded with the “TouchSmart Ultrabook” moniker, are the company’s first that will operate of Windows 8. Like the Surface, they attempt to combine the functionality of a tablet and notebook PC by allowing users to access information is a variety of ways. Similarly, Dell recently announced the rollout of its XPS Duo 12 Notebook. The device, which will contain an Intel chip, will function as a notebook by default, but allows the user to swivel the screen and secure it to the keyboard in order to create a tablet feel. This device will also run on Windows 8.
While one school of thought may favor waiting to determine how Windows 8 and the various new products that look to leverage it will be received, there is a countervailing argument for buying now. By the time one has had the opportunity to judge the reception that the various Windows 8 products will receive, the reaction will already be priced into the stock.
If Intel were a less than solid company, or if it were in a shaky industry, the risks associated with betting on the stock ahead of the release would be potentially too high. Given the solid position of the stock, the strong income element and the proven skill of the company’s management team, buying the stock now is the right call. If the launch goes well the stock is likely to benefit. If the new hybrid devices fail to dethrone existing tablets from their respective positions of dominance, the stock is not likely to be punished severely. The risk/reward profile, therefore, is attractive and the stock is a buy.
Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel and Microsoft. Motley Fool newsletter services recommend Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.