If you’re ever seen the Robin Williams movie The World According to Garp, there’s a scene where Williams’ character, Garp, and his wife are considering a two-story house they might buy, when suddenly a small Cessna crashes into the upper floor. Williams immediately turns to the real estate agent and announces, “We’ll take the house!”
His wife looks at him, dumbfounded.
“It’s been pre-disastered,” he rationalizes. “We’ll be safe here.”
These days, Intel (INTC) might just be life imitating art.
In late-July, the world’s largest chipmaker experienced the equivalent of Cessna crashing into a house when Intel announced a delay in producing its new 7-nanometer chips – a chip that rival chip giant Advanced Micro Devices (AMD) already makes.
The Street was none-to-pleased, wiping away 17% of Intel’s value in a day. Since then, the shares have drifted lower and are now about 20% less than they were on July 23, when Intel announced it set back. Little wonder then that Big Mo’ has fled the stock. Intel’s Momentum score these days is a whopping 1, meaning Intel has the momentum of a cadaver.
Intel Stock Ratings
But, of course, there’s more to a stock than momentum, which is, after all, just a popularity-contest metric.
When it comes to meaningful indicators – growth, profitability, and scalability – Intel Inside still carries a great deal of weight. And because of that weight, the 7-nanometer hiccup represents an opportunity. It just means that Intel has been pre-disastered.
And at this particular moment, when the stock market as a whole isn’t necessarily tethered to reality, and the economy as a whole is exceedingly tethered to an out-of-control pandemic with no expiration date in sight, owning a high-quality, pre-disastered technology leader isn’t such a bad approach to investing.
Consider Intel’s profitability: profit margins exceeding 29%, return on assets of 15.4%, and ROE nearly 30%. That puts Intel near the very top of the profitability pyramid.
Then there’s “scalability,” a short-hand way of capturing the venture cap Rule of 40 stating that a company’s sales-growth rate and profit margins combined should exceed 40. Intel, with those profit margins topping 29% and year-over-year revenue growth of 23.5%, has one of the highest scalability scores on the Street.
As for Intel’s growth, that 23.5% year-over-year reading might not be the highest in the land, but it’s respectably high enough to push Intel into the upper echelon of American companies.
Finally, I’ll mention value. Consider these numbers: price to sales – less than 3x. Price to book – 2.7x. Dividend yield – 2.6%. Earnings yield - 11.4%. If you could spell “mispriced” with numbers, that’s how you’d spell it.
Of course, if you’re looking to play the momentum game while there’s still a momentum game to play, Intel won’t excite you (I’ll have a tech momentum story for you soon). But if you’re looking to build a portfolio of high-quality, high-growth, fairly valued/mispriced companies that are likely to better weather the next market downturn, a World According to Garp portfolio of pre-disastered growth stocks – anchored by Intel – might not be such a bad way to go.