The Healthiest Stock in the Bag of Chips
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
No matter how long the current bull run lasts, there are going to be good values available. The technology sector is frequently and dramatically affected by "breaking news," which can sometimes be insightful, but more often they make investors panic and drive down prices.
Start taking advantage of these opportunities and establish yourself in this sector full of potential, starting with Intel (NASDAQ: INTC). The positive news will outweigh the panics for years to come for this technology icon, and others have the chance to follow suit.
The best is still a bargain
Don't let "The PC is dead" headlines scare you away from makers of chips and microprocessors. Intel has evolved to become something much greater than a computer parts supplier, including the announcement to develop a subscription-based television service. Details are yet to be released, but this continued innovation allows technology giants to stay on top and remain two steps ahead of obsolescence.
If people believe that Intel will be a contributor to the majority of technological advances and innovations for years to come, the company's statistics will convince investors that the stock remains a steal after Q1 2013. Down over 23% TTM, Intel trades at a of P/E just over 10 compared to the S&P average of approximately 15. With the exception of Apple, blue chip stocks don't trade at this level of discount.
Sitting on well over $7 billion in cash, Intel continues to distribute 4.13% to its shareholders with no sign of slowing the increasing payout. This doesn't sound like a company of the past. However, companies such as Intel need to invest in themselves for continued success. Intel's low debt to equity ratio of 0.3 is a healthy indicator, because EPS has remained stable for three years.
With four operating systems now vying for the throne on the mobile platform (Apple, Google, Microsoft, BlackBerry), Intel has fellow industry partners to spur innovation and create demand for their components.
The long-anticipated arrival of Google into the retail store world is inching closer with it's custom Chromebook Pixel, completely Google save for - an Intel processor and graphics card. Although competition is glorified by the media picking winners and losers, some technology relationships are mutually beneficial.
Lesser known from across the pond
ARM Holdings (NASDAQ: ARMH) may not be a Dow darling, but it has a lion's share of the market, again much of it behind the scenes. ARM creates "blueprints" of sorts that are used in over 95% of the world's mobile phones. As the world becomes increasingly mobile, ARM licenses will allow companies to continue innovating and keep costs reasonable for consumers. ARM's business model creates a foundation for a stream of royalties that are cycled back into the company. Sounds an awful lot like a good stock.
The company's weakness for investors lies in its yield, sitting at 0.38%. Although projected to increase, it's difficult to convince investors at this level when the business appears to be a cash machine on the outside. However, many projects, such as partnerships with phone manufacturer LG take years to deliver maximum profits. Forecasting technology trends is nearly impossible, but if ARM can build on its $131 million in free cash while keeping debt non-existent, it's a company worth watching.
Intel's graphics nemesis, NVIDIA (NASDAQ: NVDA) has been on the market radar for a long time. It has received praise from analysts, is followed closely by hardcore gamers, and is making a worthy push to obtain and hold a strong position on the mobile platform.
NVIDIA is reported to hold a 36% share of Android tablet processors, but Intel is still dominant in the more encompassing market of graphics chips in personal computers. NVIDIA sits in third place here, behind struggling AMD. The company needs to strengthen its position in this category if it intends on being competitive when tablets reign supreme in the near future.
NVIDIA is down near 20% TTM, yet trades at a fair 13.6 times earnings, has no debt, and sits on $641 M in cash. Growth is very slow, and is nearly stagnant when looking at trends over the last decade. Perhaps, a result of its inability to step up their "game." NVIDIA recently announced Shield, a mobile gaming device that will use platforms such as Android, and be portable as well as feature connectivity to televisions and PCs.
It's a bold move, but with console systems on the decline and lack of success in portable systems excluding smartphones, it's a very risky venture. As a potential investor, I wouldn't be too thrilled with this gamble.
The bottom line
I'll continue to dive into the world of chips and semiconductors, but for now, Intel is your best bet because of its established position. It has remained a bargain throughout the first quarter but will make the climb again, paying shareholders well along the way. ARM could be a great supplemental investment, but requires a very long-term commitment and patience. Although technology changes incessantly, get invested in this field of innovation in some way for the long haul.
Kyle Vaughan has no position in any stocks mentioned. The Motley Fool recommends Intel and NVIDIA. The Motley Fool owns shares of 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!