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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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