Will This Catalyst Jumpstart Intel's Share Price?

Intel shares have under-performed, despite a large catalyst right ahead of the company.

Apr 7, 2014 at 7:00PM

Intel (NASDAQ:INTC) shares are trading at a valuation discount to the S&P,  even though a large catalyst is on the horizon. Microsoft (NASDAQ:MSFT) is in the process of sunsetting Windows XP, which will drive PC upgrades and may not be fully baked into the share price. Is Intel a buy here?

Intel is cheaper than the market
Despite being in over half of the worlds PC's, Intel is having difficulty maintaining mindshare among investors. The market is rewarding Intel with a P/E multiple of 13.8, a 26% discount to the S&P's multiple of 18.6 times. It seems like investors may perceive the company as an income play, as shares are yielding 3.4%, more than a full percentage point above Apple's 2.3%. The low relative valuation and high yield indicate that investors are assuming Intel has little opportunity for growth.

The reason growth expectations are low
Intel missed the boat on supplying chips for handsets and fell behind as Atom consistently lost out to Qualcomm's Snapdragon. Last year, though, Bay Trail was supposed to close the gap in terms of processing power. Testing by Engadget offered promise, showing that in three of the four benchmarks tested, the performance comparison between the Snapdragon 800 and Bay Trail ended almost in a draw. However, that didn't prevent Samsung from designing Intel out of its tablets. This is a headline-grabbing issue, but not a reason to count Intel out. The bigger near-term issue affecting the company's top line is that PC demand is likely going to see an uptick in the coming months.

Windows XP upgrades will accelerate PC Sales
Microsoft has decided to sunset Windows XP after 12 years of service. This means that Microsoft will not be supporting the operating system with security updates and software patches. You might think that most active computers would already be off XP, but many organizations won't migrate if they don't have to. The Washington Post estimates that 10% of government computers will still be running XP after April 8, when free support for the operating system ends. This sounds bad, but it's much worse overseas. The British government is reportedly paying $9 million to extend its support plan for one year after it was discovered that 85% of the National Health Service's 800,000 PCs were still running Windows XP. It's not just the government, though; according to CIO magazine, a survey of 1,077 businesses (mostly mid-sized) showed that 60% will not have migrated off of XP by the April sunset date.

OS upgrades lead to hardware upgrades
A PC is depreciated over four-five years, and the companies that tried to save money by buying under-powered hardware last time will be forced to upgrade the hardware in addition to the OS upgrade. In fact, if you calculate the cost of the difference between the cost of a new PC and the cost of a RAM upgrade, the time to upgrade the OS, and the labor involved, the difference is negligible, making hardware upgrades very prevalent. 

Low expectations, despite a catalyst
Shares of Intel look interesting considering the low valuation, attractive dividend yield, and potential growth catalyst in the coming months. The low valuation implies that growth expectations are low and make sense since Intel has been competing poorly on the mobile front.  What people are missing, though, is the catalyst of the Windows XP upgrade cycle that is likely to affect domestic and international businesses and government agencies. 

Boost your 2014 returns with The Motley Fool's top stock
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


David Eller has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers