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As portfolio manager of Tier 1 investments, a Motley Fool Rising Star Portfolio, my mission is to identify the best businesses in the world and invest in them at attractive prices. One of the ways I do that is by searching through hundreds of companies and adding a select few to my watchlist. Then from my watchlist I select what I believe to be the best of the best to add to the Tier 1 Portfolio. Today I'm adding Intel (Nasdaq: INTC ) . Here's why.
Many investors believe that Intel's best days are behind it, as the tech giant's chips have a much lower market share in the explosive smartphone and tablet markets than Intel enjoys in desktop and laptop PCs. Many investors fear that rivals such as ARM Holdings (Nasdaq: ARMH ) -- Intel's small competitor that practically owns the mobile-microprocessor market -- may also begin to eat into Intel's lead in PCs. While ARM is a legitimate threat to Intel, here are three things that could potentially drive Intel's shares higher:
- The PC is not dead. PC shipments increased 13.8% in 2010 and have averaged 10% annual growth since 2006. Strong demand from consumers in emerging markets and from companies upgrading to Windows 7-based machines should continue to fuel this growth.
- Demand for servers is strong. Intel is benefiting from the rapid growth in cloud computing. As companies build up their cloud infrastructure, they will require more high-performing servers powered by Intel chips.
- Tablets and smartphones are more of an opportunity than a threat. Intel has almost $8 billion in net cash on its balance sheet and is spending more than $7.3 billion on research and development this year. That $7.3 billion is 10 times what ARM Holdings generated in revenue during the past year. And we won't have to wait long to see the results of Intel's investments -- Intel's processor chips are making their debut in tablets this year and smartphones in 2012.
What I'm watching
Intel's share price has risen about 17% since James Early and I recommended them to Income Investor members in April. The stock is still yielding more than 3%, but it's no longer the same bargain that it was at less than$20 per share. If the market knocks shares back down to that level again, I may add Intel to the Tier 1 Portfolio. Until then, let me know what you think about Intel on the Tier 1 discussion board.
In the meantime, if you see merit in Intel as well but want to keep an eye on the company, add Intel to our free My Watchlist service, which will deliver up-to-date news and analysis on the company.
- Add Intel to My Watchlist.