Need Growth and Income? You Still Need Intel

Finding the perfect stock as key holding for a sound portfolio is crucial, and Intel (Nasdaq: INTC  ) foots the bill nicely. It's the ideal anchor, offering (relative) stability even when the rest of your holdings go haywire, outstanding growth potential, and more than a little income. Even after the recent downward guidance, the stock wasn't oversold. Just what you'd expect from your portfolio bellwether.

The stock has outstanding potential for growth and a ridiculously nice income stream to enjoy along the way. With all that, it remains one of the best values in any industry in my mind. Why the discount? There are the usual suspects; an uncertain international market and the standard concerns regarding domestic growth come readily to mind. But one of the bigger "problems" naysayers cite is the Apple-like "Death of the PC" mantra, and that's a shame.

The nuts and bolts
Intel was built on the PC, the "Intel Inside" marketing tagline became synonymous with a quality computing experience. While that still holds true, there's no denying the PC market decline is a matter of when, not if, as users transition to smartphones and tablets. One quick glance at PC leader Hewlett-Packard's (NYSE: HPQ  ) 24% price decline this year confirms the industry is having a tough go of it.

As talk of the PC market slowing continues, Q2 of 2012 reinforced the bear notion of a downward trend in worldwide PC shipments. The 0.1% drop worldwide was hurt by the 5.7% drop domestically. The positives -- what there were of them -- continued to come from emerging markets. To HP's credit, they remained the preeminent PC maker, once again leading the market. But questions regarding the future continue to linger, which has, by extension, affected industry leader Intel and their smaller rival AMD (NYSE: AMD  ) .

AMD's Q2 results was depressing in and of itself, and they were made considerably worse if you're an AMD shareholder by the negative guidance following the earnings Q2 announcement. That negativity was echoed, at least in part, by Intel management as it reduced full-year guidance for much the same reason. Of course, for long-term Intel watchers we've heard that story before. Intel is the master of the "underpromise and overdeliver" philosophy.

The future

The future is hardly bleak for Intel, despite what you may hear. Somewhat lost in translation seems to be the opportunity Intel has to grow in the server market. The company already has a commanding position, ending 2011 with a 16.5% market share of the global semiconductor market (the highest in a decade for Intel), much of which is attributed to growth in the server market. As more and more companies shift to cloud technologies, Intel will be able to leverage its dominant server product sales and grow right along the marketplace.

For additional growth, investors need look no further than mobile computing chips. Intel has talked about entering the market for some time now, but the first part of this year, management finally decided to get serious. Partnerships, albeit relatively small ones, with Lava International, Orange, and ZTE were in addition to working relationships already in place with Motorola Mobility and Lenovo. Both Motorola Mobility (now a part of Google) and Lenovo are expected to begin shipping smartphones with Intel's Atom chips in Q3 of this year. An advanced Atom chip, the Z2580, will double the speed of the original Atom chip and is due for customer use the first half of 2013.

Still, taking away smartphone and tablet chip market share from NVIDIA's (Nasdaq: NVDA  ) well-received and growing Tegra mobile computing products, not to mention Qualcomm (Nasdaq: QCOM  ) , the current leader with 25% of the entire market, is going to take some doing. But with 16.5% of the market in both servers and PC's, not to mention nearly $14 billion on the balance sheet, Intel certainly has time to work its magic.

Bet on Intel management
Intel's financial results continue to be impressive, particularly when investors dig deeper into the statements. Revenue was actually up 5% this past quarter over Q1, just not as much as expected. Operating income? Net income? Both were up over last quarter as well, 1% and 3%, respectively. No, not the jump management or shareholders were hoping for, but with all the "sky is falling" talk out there for chipmakers, that ain't bad.

As for Q2, there's the still impressive operating and profit margins to hang your hat on. They both remain the highest in the industry, and strong margins are a testament to how efficient a management team is able to run a company. It's clear CEO Paul Otellini and crew have a firm handle on things. It was great to see Intel generating $4.7 billion in cash last quarter, too. Oh, and let's not forget the $1.1 billion share buyback, either.

For mid- to long-term investors, the icing on this particular cake is based on earnings multiples. Intel is the best value in the industry, hands down. Now factor in the prospects for future growth in mobile chips and a dividend yield of 3.36%, and it's easy to see why Intel should be the cornerstone of most every investor's portfolio.

For a more comprehensive look at NVIDIA, one of the smartphone chip makers already making a significant impact in this exploding market, check out our free special report "The Next Trillion-Dollar Revolution."

Fool contributor Tim Brugger currently holds no securities positions, including any mentioned in this article. The Motley Fool owns shares of Intel and Qualcomm. Motley Fool newsletter services have recommended buying shares of NVIDIA and Intel and writing puts on NVIDIA. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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