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Will Intel Help You Retire Rich?

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Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. In this series, I look at 10 measures to show what makes a great retirement-oriented stock.

You may never have seen an actual physical Intel (Nasdaq: INTC  ) product, but the company's chips are inside a huge range of technological devices you use every day. With particular strength in the PC market, Intel has been a leader in its industry for decades. But as mobile device use picks up, can the company extend its strength to the highly competitive mobile market? Let's revisit how Intel does on our 10-point scale.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

With those factors in mind, let's take a closer look at Intel.

Factor

What We Want to See

Actual

Pass or Fail?

Size Market cap > $10 billion $141 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 3 years Fail
  Free cash flow growth > 0% in at least four of past five years 3 years Fail
Stock stability Beta < 0.9 1.09 Fail
  Worst loss in past five years no greater than 20% (43.5%) Fail
Valuation Normalized P/E < 18 13.88 Pass
Dividends Current yield > 2% 3% Pass
  5-year dividend growth > 10% 14.4% Pass
  Streak of dividend increases >= 10 years 8 years Fail
  Payout ratio < 75% 31.9% Pass
       
  Total score   5 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Intel last year, the company has kept its 5-point score. But the shares have done extremely well as the semiconductor giant starts staking its claim in the new technological revolution.

Few people dispute Intel's dominance over the PC industry. Although Advanced Micro Devices (NYSE: AMD  ) has steadfastly competed with Intel, AMD hasn't managed to crack Intel's huge market-share advantage. And even though PC sales growth has slowed greatly in the U.S. and other developed markets, emerging-market economies still have a long way to catch up, giving Intel's processors and NVIDIA's (Nasdaq: NVDA  ) graphics chips a chance to flourish in new markets for years to come. That's an opportunity that Microsoft (Nasdaq: MSFT  ) hasn't been able to benefit from as much, because software is obviously easier to pirate than physical processor chips.

But mobile devices require a different sort of response from the chipmaker. So far, Intel's Ultrabook initiative appears to be geared more toward replicating Mac laptops than tablets or smartphones. Its Medfield mobile-chip line takes a bigger crack at ARM Holdings (Nasdaq: ARMH  ) and its mobile chipset architecture, but Intel isn't used to working from a come-from-behind stance and could find the experience more difficult than it expects.

For retirees and other conservative investors, the key question is whether Intel will make strategic mistakes in trying to extend itself into the mobile market. If it does, those mistakes could threaten the solid income the company will generate from its legacy PC business. Success there, however, could guarantee impressive returns for shareholders for years to come.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.

If you really want to retire rich, no one stock will get the job done. Instead, you need to know how to prepare for your golden years. The Motley Fool's latest special report will give you all the details you need to get a smart investing plan going, plus it reveals three smart stocks for a rich retirement. But don't waste another minute -- read it today.

Add Intel to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Intel and Microsoft. Motley Fool newsletter services have recommended buying shares of NVIDIA, Intel, and Microsoft, as well as writing puts on NVIDIA and creating a bull call spread position in Microsoft. 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 Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (3)

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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 April 10, 2012, at 12:43 AM, jdwelch62 wrote:

    "but Intel isn't used to working from a come-from-behind stance and could find the experience more difficult than it expects."

    Correction: When Intel switched from being primarily a memory chip maker to a processor maker, they were not the leader & there were incumbents; now they are the undisputed leader in CPU manufacturing. When Intel cracked the server market they were not the leader & there were incumbents; now they command 90+% of the server market. Intel has a long history of coming from behind to overtake & dominate. Bone up on your Silicon Valley history, Dan...

    :-)

  • Report this Comment On April 10, 2012, at 10:13 AM, jpanspac wrote:

    Excellent riposte, jdwelch62. I was going to post the same thing, but you said it much better than I would have.

  • Report this Comment On April 11, 2012, at 6:48 AM, TMFGalagan wrote:

    @jdwelch62 -

    Nicely put. I'd only respond that it's been a while since Intel has taken on that sort of major challenge, so it could take some work to get itself back into that mindset.

    best,

    dan (TMF Galagan)

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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