Why Intel Corporation Stock Could Yet Again Outperform in 2015

Here's why Intel could be a winner in 2015.

Jul 25, 2014 at 11:30AM

Shares of Intel Corporation (NASDAQ:INTC), the world's leading vendor of PC and server processors, have performed beautifully over the last year, up 32% year to date against a Nasdaq up just 7.08%. Can Intel stock deliver yet another year of outperformance during 2015? 

Mobile is ugly, creating opportunity
One of the most attractive features of the Intel story is the enormous potential that the company has ahead of it in mobile. As Apple's (NASDAQ:AAPL) iPad sales continue to decline while its Mac sales soar, it's looking as though the tablet computer is just another form factor of the PC and that the "traditional" PC market that Intel plays in -- notebooks and desktops -- isn't in terminal decline.

Assuming that Intel's traditional "PC" business is flat to slightly up over the long-term, the mobile business starts looking -- as it originally did -- like a great incremental opportunity for the company. With over 1 billion smartphones shipped last year and with just under 200 million tablets shipped, there's a lot of potential upside here if Intel can capture it. 

Not surprisingly, Intel is losing about $1 billion per quarter investing in this mobile opportunity (developing chips isn't cheap). These losses hurt in the near term, but will likely prove well worth it in the years ahead.

Intel's 2015 mobile plans in a nutshell
Intel should benefit from a number of mobile tailwinds next year. For starters, the contra-revenue program that Intel has in place for its tablet products will go away as products that do not require these subsidies hit the market by the end of 2014 and across 2015. 

Intel is also likely to benefit from the ramp of its stand-alone LTE-Advanced modems as well as its integrated applications processor and modem chips for low-cost smartphones. Finally, by the second half of the year, Intel is set to begin to ramp its first "hero device" worthy applications-processor platform known as Broxton (for both smartphones and tablets). 

What kind of loss will Intel incur in mobile next year?
Suppose that Intel can ramp from 40 million tablet chips shipped this year to about 70 million contra-revenue-free tablet chips. Further, assume that Intel can also ship roughly 50-100 million smartphone modems and applications processors. Under reasonable selling price assumptions ($15 for the tablet chips, $20 for the smartphone platforms), Intel's mobile division could drive north of $2 billion in mobile chip sales.

This would still generate a loss (the breakeven for this division is between $5.5 billion and $6.6 billion) of about $2.2 billion (assuming $2.25 billion in sales and 50% gross margins), but this is half of what the division is set to lose in 2014. 

Could the shares hit $40 next year?
Assuming that Intel can grow its datacenter group by low double digits in 2015 from 2014 levels, PC chip sales grow modestly, and mobile revenues grow significantly, it's not hard to see Intel doing between $58 and $60 billion in sales. 

At a gross margin profile of about 63% for 2015, coupled with operating expenses of $19.2 billion (flat to 2014) and a tax rate of 28%, net income of $12.5 billion and $13.3 billion seems reasonable. At 15 times those estimates, Intel could hit between $37 and $40 next year, potentially outperforming the market again. 

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Qualcomm. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers