The Best Stocks for 2010: Intel

Before we launch into why I'm hot on Intel (Nasdaq: INTC  ) , let's take a moment to get our expectations in line.

If we focus solely on the gauge of stock performance, we can point to some real screamers in 2009. Avis Budget Group, for instance, soared more than 1,800% from the end of 2008. Dendreon was up close to 500%.

Do I expect Intel to put up these kinds of numbers in 2010? Nope.

However, for investors looking for a rock-solid company that's a leader in its industry, is ready to take advantage of some very favorable tailwinds, and has very reasonably priced shares, Intel could very well be the best stock for 2010.

The chip champ
While investors shouldn't cheer lawsuits over anticompetitive practices, they are a sign of one of the main reasons Intel is such a great company to invest in -- its total dominance of its industry.

Sure, AMD (NYSE: AMD  ) also makes PC chips, and NVIDIA (Nasdaq: NVDA  ) is a tough competitor in the graphics chip market, but Intel is clearly the Michael Jordan of the PC chip industry. And leaders like Intel are typically able to deliver the most consistent growth and high-level margins in their respective industries.

But market share isn't the only place where Intel flexes its muscle. The company's balance sheet has only $2.2 billion in debt, compared to a massive $13 billion stockpile of cash and equivalents. That cash hoard has nowhere to go but up, since Intel's business generates way more cash than it needs to fund capital expenditures. This also gives the company plenty of cash to pay its growing dividend and buy back shares.

Tailwinds galore
Why Intel now? The company has quite a few tailwinds at its back that should help it boost earnings -- and allow the stock to outperform the market -- in 2010.

Microsoft's (Nasdaq: MSFT  ) Windows 7 recently hit the shelves, and thus far, it seems to be much more well-received than its predecessor, Vista. This should help drive new computer sales, which can't help but lift sales for the world's No. 1 PC chipmaker.

While PC makers like Dell and Hewlett-Packard have noted that increased PC sales thus far have been weighted towards consumers, there is strong evidence that corporations are sitting on an aging installed base of PCs, many of which will likely be replaced in 2010.

Speaking of corporate buyers, there's evidence that customers are really digging Intel's Nehalem server products. This is great news for Intel, since server products tend to carry higher margins. If corporate budgets get an upgrade in 2010, server upgrades could put some nice pep in Intel's earnings step.

And of course, we can't overlook the potential for a broad global economic turnaround to help prod both consumers and corporate customers to boost their computer purchases.

All at a very reasonable price
Normally, we'd have to pay a premium price for such a sterling company, but that's hardly the case with Intel right now. Compared to many of the other tech powerhouses, Intel's valuation stacks up very favorably.

Company

Forward Price-to-Earnings

Enterprise Value-to-Sales

Expected Long-Term Growth

Intel

13.8

3.1

11%

IBM (NYSE: IBM  )

12.5

1.0

10%

Microsoft (Nasdaq: MSFT  )

16.1

4.4

11%

Cisco (Nasdaq: CSCO  )

16.8

3.3

11%

Qualcomm

20.7

6.4

17%

Apple (Nasdaq: AAPL  )

27.2

4.5

19%

Source: Capital IQ, a Standard & Poor's company.

And while those multiples look pretty attractive, Intel is also one of the few major tech companies with a serious dividend track record. Currently, Intel's stock yields 2.8%, but investors have good reason to expect the payout to climb in the years to come. Between 2004 and 2008, Intel's dividend payout has grown at a compounded annual rate of 28%.

Nothing's gonna ever keep you down
I fully expect that plenty of stocks will outperform Intel in the coming year. But if you want a company that will ride a cyclical upswing and beat the market in 2010, then use its financial strength and industry dominance to beat the market for years to come, Intel could very well be the best around.

Which is the best stock for 2010? See all 13 candidates here.

Apple and NVIDIA are Motley Fool Stock Advisor recommendations. Dell, Intel, and Microsoft are Motley Fool Inside Value recommended calls on Intel and a diagonal call strategy on Microsoft. Try any of our Foolish newsletter services free for 30 days

Fool contributor Matt Koppenheffer owns shares of Intel, but does not own shares of any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. The Fool’s disclosure policy has never once been caught with its pants down. Of course, it doesn't actually wear pants …


Read/Post Comments (5) | Recommend This Article (26)

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 December 30, 2009, at 12:09 PM, tellmewhat wrote:

    I question the growth projection.

    Putting aised the 2009 negative effects and that everything you compare to 2009 will look good, i question the growth projection.

    When intel has almost all the market share , where can it grow to. Intel is not pioneering good enough in breaking out of the traditional cpu buisness. What is the growth roadmap ? What are the new markets ? What are the new products ? compare that to nvda's roadmap with breaking into the computing world with its tesla products, or the tegra based mid devices. Most likely Intel's only growth direction is squeezing the margins .

    On the other hand, Intel can loose market share if its competitors start executing well. one may want to buy insurrance in the case he is sitting on INTC for long term.

  • Report this Comment On December 30, 2009, at 12:21 PM, Screws wrote:

    INVENTORS - DO NOT TRUST INTEL

    I invented a CPU cooler - 3 times better than best - better than water. Intel have major CPU cooling problems - "Intel's microprocessors were generating so much heat that they were melting" (iht.com) - try to talk to them - they send my communications to my competitor & will not talk to me.

    Winners of major 'Corporate Social Responsibility' award.

    Huh!!!!

    When did RICO get repealed?"

    IPROAG - The Intellectual Property Rightful Owners Action Group.

    The One Dollar Patent.

    Posted by: Not Edwin Armstrong II

  • Report this Comment On December 30, 2009, at 7:44 PM, minibeee wrote:

    Amd more upside. Intel- huge float-huge legal overhang-good sector- look elsewhere in it.

  • Report this Comment On December 30, 2009, at 8:59 PM, minibeee wrote:

    Plus, even though it's in a hot sector, why would i want a stock where every legal announcement suppresses the price of the stock. Back to stock school Matt!

  • Report this Comment On January 01, 2010, at 12:56 AM, drborst wrote:

    I own Intel and would love to see it as the best performer of 2010, but I don't think its going to happen.

    Intel keeps trying and failing to break out of PC CPU market and failing, they practically invented netbooks, and my bet is Apple kills that market next year with no Intel chips.

    And Minibeee has some good points, but I respectfully disagree. I think Intel's legal trouble is winding down. (Google's is next). Also, not that AMD doesn't have more upside, but I'm still trying to digest who gets that upside if they execute? Is it the AMD design house or the new Foundry company guys who build the chips? I'd love some help on that.

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