Plenty of stocks have been surging this year, but others have been cast aside by investors. Semiconductor-giant Intel (INTC -2.49%) and entertainment juggernaut Disney (DIS -1.74%) have entirely missed out on the rally.
Both stocks look like great long-term bets -- so much so that I recently bought more of each. Here's why I decided to up my stake in these two bargain turnaround stocks.
Intel
Chip-giant Intel has undoubtedly fallen behind over the past few years. Manufacturing missteps led to product delays, and product delays hurt the company's competitiveness against rival AMD. Taiwan Semiconductor Manufacturing Company Limited, or TSMC, the world's leading foundry and AMD's manufacturer, offers more advanced manufacturing processes than Intel has been able to muster.
Intel's comeback plan is centered around catching up to TSMC in manufacturing and challenging the market leader in the foundry market. By rapidly bringing multiple new process nodes to volume production and separating its product and manufacturing operations internally, Intel aims to beat AMD in the PC and server CPU markets while growing into the world's second-largest foundry.
This is a multiyear plan that has yet to bear much fruit. Intel's foundry business is almost entirely composed of internal revenue right now, although the company has booked at least $15 billion worth of external foundry business.
The final process node in Intel's initial roadmap, Intel 18A, is set to be ready to go by early next year. Intel expects Intel 18A to be the most advanced process node in the industry when it starts churning out chips at volume.
Intel stock is down more than 50% from its multiyear high. The company is valued below $140 billion, about $100 billion less than AMD and a fraction of TSMC's market value. Relative to book value, or assets minus liabilities, Intel stock is about as cheap as it's ever been.
Pessimism is running too high, in my opinion, so I recently added to my Intel position. I expect the company to be worth significantly more by the end of the decade as the foundry business spreads its wings.
Disney
When you invest in Disney, you're investing in the company's unparalleled ability to leverage its massive and iconic collection of characters, franchises, and intellectual properties across all of its businesses.
Disney has certainly made some missteps in recent years. The Marvel film franchise, once an unstoppable powerhouse, has been weakened by an overload of mediocre releases. The linear TV business is in a slow decline, and the company has only recently focused on boosting streaming profits. Disney has reorientated its content-creation engine to focus on quality rather than quantity, and it will take time for the benefits to become apparent.
Disney expects to generate around $8 billion in free cash flow this year, putting the price-to-free cash flow ratio at around 20. That doesn't seem particularly cheap, especially considering that Disney's revenue grew by just 1% year over year in the latest quarter. However, as Disney turns streaming into a cash machine, reboots its film business, and continues to invest in its parks and cruise ships, free cash flow has the potential to grow substantially in the coming years.
Disney stock has had a rough few months, sinking to around $90 per share. I used this opportunity to add to my position, and I may come back for more as pessimism drives down the stock price.
