FKA: INTC

Investing Strategies Falling Knives
1

Intel at $48.00, again, still, forever.
This isn’t a particularly strong or recent fall. No particular reason to post it now, though it’s 31% off its 52 week high.
Mainly it’s just a firm that is very much out of fashion.

The total return since April 2018 is a nice round zero.
Earnings then were in the $2.00 to $2.50 range, depending on which four quarters you look at.
Earnings these days are problematic: being top of cycle, trailing year earnings are $4.86 and forward consensus is around $3.55.
Still, both of those numbers are way higher than four years ago, and they have a bulletproof balance sheet.
I don’t think they are about to stop making good money any time soon.

A once-in-a-lifetime pick with a 10x upside? Nope.
But I expect extremely low downside with quite pleasant or potentially very good forward returns, which is not such a bad thing.
“The report of my death was an exaggeration.”
The have not done well in the current fab cycle, but I believe they are still among the best in the world at quite a large number of related skills.

And hey, some people would probably like a dividend just over 3.0% that is not at all in jeopardy.

One of my dumbest screening criteria:
The difference between 5-year EPS growth and 5-year total return. The “hiding in plain sight” list: getting cheaper and cheaper.

Jim

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It pleases me to see you post this since I added some INTC last week. You can’t argue with their earnings reliability. Over the last decade earnings have grown ~7% a year, the dividend has nearly doubled, and they reduced share count by 16%. All this as they were viewed as a stumbling dinosaur. As you note, the earning machine continues to spit out cash while the share price stays stuck at 2017 levels. I have it at a PE of 9 at the moment. How often can you buy a solid company earning real money and paying it out reliably in dividends and buy backs at less than 10 times earnings? You are not often wrong in your assessments, and I hope that trend continues with INTC.

PP

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Intel is having serious structural challenges. They lost their edge in manufacturing, TSMC is way ahead, they lost their edge in design (AMD, NVDA) are ahead. Now google’s of the world are designing their own application specific chips.

Where is Intel going from here? I Don’t know. Do they have a path back to relevancy, I don’t know. There is a reason Intel is cheap.

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The same thing was said about MSFT in 2010:

https://discussion.fool.com/fool-slams-msft-28801886.aspx

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Revenues in 2011= $54.0 billion
Revenues in 2016 = $59.4 billion
Revenues in 2021= $79.0 billion

Earnings in 2011 = $12.9 billion
Earnings in 2016 = $13.1 billion
Earnings in 2021 = $20.9 billion

Share count in 2011 = 5 billion
Share count in 2016 = 4.7 billion
Share count in 2021 = 4.2 billion

EPS in 2011 = $2.39
EPS in 2016 = $2.72
EPS in 2021 = $4.89

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I am not disputing the numbers, I have a small position in Intel. I am glad it is small :slight_smile: Intel takes great pride in its manufacturing, right now they are manufacturing their advanced chips at TSMC. Intel lost its identity and directionless.

https://www.reuters.com/business/intel-details-mixed-source-….

Separately, until Satya took over and steered Softy towards Azure, cloud, MSFT was not going anywhere. They were making meaningless acquisitions like Nokia, etc.

This is what Steve Ballmer wrote in 2013

In the critical choice today of digital ecosystems, Microsoft has an unmatched advantage in work and productivity experiences, and has a unique ability to drive unified services for everything from tasks and documents to entertainment, games and communications. I am convinced that by deploying our smart-cloud assets across a range of devices, we can make Windows devices once again the devices to own. Other companies provide strong experiences, but in their own way they are each fragmented and limited. Microsoft is best positioned to take advantage of the power of one, and bring it to our over 1 billion users.

By 2018, Windows division was no more. A division that existed from 1980 is gone!!!

Here is Satya’s memo

More recently, we have described ourselves as a “devices and services” company. While the devices and services description was helpful in starting our transformation, we now need to hone in on our unique strategy. At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world. We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more

Microsoft was so focused on Windows and Satya refocused the company. The very simple act of renaming their cloud as Azure to his acquisitions like github, linkedin all moved the company away from an OS company to a digital, cloud company.

Satya Nadella took Windows company and created a digital, cloud software company called Microsoft. In that process in 7 years he created 2 Trillion Market cap, paid over $100 B dividends and purchased 1 Billion shares.

From nowhere, Microsoft is the clear number 2 in cloud.

You cannot merely compare companies without comparing where they are in business cycles, management vision, within industry, etc.

Today’s Intel is not Microsoft circa 2014.

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Jim, I’m liking $INTC more today than I did back on 21 JAN 22 when I was hoping for a breakout which never took place.

I just posted newer looks of $INTC charts here:

https://discussion.fool.com/destiny-solutions-corporation-121436…

You will also see I linked directly to the latest article about $INTC’s $20 Billion investment in what Pal Gelsinger, CEO of $INTC, is calling “The Silicon Heartland.” That is, two big plants in Ohio.

“Our expectation is that this becomes the largest silicon manufacturing location on the planet,” Intel Chief Executive Pal Gelsinger told Time. “We helped to establish the Silicon Valley, now we’re going to do the Silicon Heartland.”

From that same article:

Last year, Gelsinger laid out plans to revive Intel to its former glory, and to build new chip facilities to reduce the semiconductor industry’s reliance on Asian manufacturers. Intel announced plans to build a $20 billion chip-fabrication facility in Arizona and a $3.5 billion chip plant in New Mexico.

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AMD limped along for years - decades - with "brilliant " CEOs like Hector the wrecktor. And look at it now. So it is not inconceivable that Intel will regain its edge in fab. I can’t imagine their R&D department is sleeping on the job.
My company was acquired by Intel so I can tell you they are quite good at destroying value through random acquisitions for which they overpay and then run into the ground. WindRiver is a good example. Nonetheless, their chip manufacturing expertise is quite awesome. So there is some hope yet.

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Turnaround takes more time and the new CEO going to TSMC for manufacturing is a big move. We need to see how successful he is going to be in reshaping the organization. I have a tiny position and not going to add anything to it.

The market is in chaos, lots of companies are dropping like stone. By June/ July market would have killed many high flying companies, where we may have a fertile field of opportunities. Why lock your capital on very old, turnaround story that is behind the curve?

Sit tight is my mantra.

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Another way to be long:

Selling 6 month out cash-secured OTM puts:
Jul 15 2022 INTC put: strike 45, bid 2.74, ask 2.81

Assume for argument a 2.77 fill gives an effective return:
2.77/(45-2.77)= 0.0655 or 6.55% over 160 days, or roughly 15% annualized.

Depending on how much work you want to do, could sell nearer term puts.

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Another way to be long:

Selling 6 month out cash-secured OTM puts

When you are long, you participate in the share price appreciation, get dividends. You don’t get any of those things when you sell insurance.

Selling puts is not same as being long.

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True enough. But much of the cash secured put selling strategies we’e discussed use underlyings that you wouldn’t mind being long.

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True enough. But much of the cash secured put selling strategies we’e discussed use underlyings that you wouldn’t mind being long.

If you are selling option, just call it as I am selling option. Don’t tell yourself that you are being long or you don’t mind being long at that price. If you don’t mind you would be long. If you don’t like current price then you don’t like current price. What makes you to think the price changes without the facts about the company changing? For ex: PYPL is down because company has changed it customer acquisition and hence their growth plans. When the price changes and it is because of additional news then you may not like that price given the new facts.

I am not against selling puts. I have a trading account where I trade lots of options, specifically sell naked puts using aggressive margin. But If I want to be long, I buy long-calls, not sell puts.

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