Is Intel Worth A Look Ahead Of Earnings?

By Glenn Curtis | September 23, 2009 AAA

In three, five or ten years do you think that people throughout America and the world will be more or less dependent on computers and other communication gadgets than they are right now? If you think the answer is more dependent, the semiconductor space deserves a major top to bottom look. My favorite player right now is, by far, California-based giant Intel (Nasdaq:INTC).

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Why Intel?
In spite of an incredibly long and ongoing battle with Advanced Micro (NYSE:AMD) coupled with an incredibly slow economy Intel has, and is expected to show, strong earnings. Looking back the data shows that it's been profitable in three of the last four quarters on an EPS basis and that it has beaten expectations in two of the last four.

Intel is actually expected to release its third-quarter earnings in mid October. The estimate is 27 cents. My feel is that it will at least meet that number, but probably beat it. Interestingly, the estimate for the period has gone up a nickel over the last 30 days, a fairly good sign. One thing that would make the situation even more convincing would be some open insider buying at the current price.

About Its Number One Rival
Advanced Micro is not a company that I like from an investment perspective. The AMD optimists will argue that the company will continue to be a pain in Intel's side thanks to its technology, popularity among the masses and the good people it has working for it. Some might argue that if the company can return to profitability that interest in the stock may rise.

That's a reasonable argument but at the end of the day I'd rather play the top banana in this space, and the one that is the most profitable and this leads me to Intel. Moreover, while AMD may indeed return to profitability on an EPS basis at some point, if and when that might happen remains to be seen. I prefer to get the feeling that full year profits were on the nearer-term landscape.

Another Chip Worth Dipping?
Texas Instruments
(NYSE:TXN) makes chips that are used in things like cell phones. The firm recently drew headlines for raising its third-quarter earnings guidance. The company is also coming off a better-than-expected second quarter, and in time I think it could grow a great deal as demand for that end product increases.

I also like Dell (Nasdaq:DELL), which obviously uses semiconductors in its computers. Dell made headlines earlier this week with its intention to buy Perot Systems (NYSE:PER). As of this writing, Dell trades at 15 times this year's estimate.

The Bottom Line
Semiconductors are the wave of the future, and I think that demand will perk up materially in the years ahead. With that in mind, I feel that Intel is the best way to play this space. Its size, vast pockets, technology, recent ability to beat earnings and profitability are too good to simply ignore. (To learn more, check out The Industry Handbook: The Semiconductor Industry.)

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