Why Intel Will Outperform

Is Intel (Nasdaq: INTC  ) headed higher, or lower? That's the question we ask when we evaluate insider buying and selling. We ask because how executives spend their paychecks is often a reflection of what they think of their companies' prospects.

Of course, not all buys are equal. According to two decades worth of research from Dr. H. Nejat Seyhun compiled in his book Investment Intelligence from Insider Trading, buying is most predictive when it (a) comes from the CEO or other top-level executive, and (b) it's performed in bulk. Seyhun found buys of between 10,000 and 100,000 shares to be most informative.

How do Intel's managers measure up against Seyhun's benchmarks over the past year? See for yourself:

Insider Rating Bullish
CFO buying at prices lower than his last sale. Overall, more buying than selling.
Business Description One of the world's largest makers of semiconductors for electronic devices.
Recent Price $20.04
CAPS Stars (Out of 5) ****
Percentage of Shares Owned by Insiders 0.05%
Net Buying (Selling)* $61,040
Last Buyer (% Increase) Stacy Smith, Chief Financial Officer
5,000 shares at $19.18 apiece on Oct. 18, 2010
(Added to direct holdings by 30%.)
Last Seller (% Decrease) William Holt, General Manager, Tech & Mfg.
1,601 shares at $24.07 apiece on April 26, 2010
(Reduced daughter's direct holdings by 100%.)
Competitors Advanced Micro Devices (NYSE: AMD  )
IBM (NYSE: IBM  )
Texas Instruments (NYSE: TXN  )

Sources Form 4 Oracle, Capital IQ, and Motley Fool CAPS. (Data current as of Oct. 26.)
*Open market sales and purchases only.

What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.

Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.

The Foolish view: bullish
Intel helped kick off the huge rally we've seen in tech stocks recently when it reported better-than-expected earnings earlier this month. The chipmaker is projecting further gains during the fourth quarter, when new tablet computers and other electronics ship with Intel's Atom chipset.

Meanwhile, its partnership with Apple (Nasdaq: AAPL  ) continues to show signs of flourishing with the Mac maker shipping record numbers of computers and preparing a new operating system in time for next year's back-to-school shopping season.

Intel, for its part, has significantly increased margins over the past year, resulting in big gains in normalized net income. The balance sheet is also improving; cash and investments are up close to $7 billion in just nine months. Performance like that is attracting Fools to the stock, even if rival chip designer ARM Holdings (Nasdaq: ARMH  ) leads in the market for smartphones and other mobile devices.

"I give this management team time to get onboard with the growth in mobile tech and see what that will mean for the bottom line. Stock is also way oversold, I do believe," wrote amchiker16 two weeks ago.

Intel Chief Financial Officer Stacy Smith would appear to agree. He bought 5,000 shares at $19.18 apiece the week after the earnings report and now holds 21,785 shares in his personal portfolio. With Intel's market position and attractive valuation -- the stock trades for just 10.7 times projected earnings -- I think he'll profit handsomely.

Do you agree? Disagree? Log into Motley Fool CAPS today and tell us how you would rate Intel. You can also add the stock to your watchlist.

And if you want me to take a Foolish peek at the insider action of your favorite stock, email me here or use the comments box below. I'll write this column as often as you, our readers, demand.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Apple is a Motley Fool Stock Advisor selection. Intel is a Motley Fool Inside Value pick. Motley Fool Options has recommended subscribers buy Intel calls. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He had stock and options positions in Apple and a stock position in IBM at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. The Motley Fool owns shares of Apple, Intel, IBM, and Texas Instruments and is also on Twitter as @TheMotleyFool. Its disclosure policy has its eye on you.


Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 27, 2010, at 5:00 PM, vjoeudo wrote:

    Stacy Smith must have tons of SPP and stock options. Why is he buying Intel on the open market? He probably has a bad financial adviser.

  • Report this Comment On October 27, 2010, at 7:02 PM, dumbfool2000 wrote:

    Come on dude, no one going listen to you. All the fools been hyping this stock for years. Let a life.

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