At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
Which witch is which?
Ordinarily in this column, that's exactly who we focus on -- the brightest picks of the best Street stockpickers, and the more boneheaded calls made by the sorrier second tier. Today, we're going to take a break from the mundane, and revisit an analyst we first introduced you to back in May of '09: Australian i-banker Macquarie.
Macquarie's making headlines this morning with a bold paired-pick, upgrading Intel
Lately, all the talk in tech circles has been how iPad upset the economic apple cart:
- Boosting the fortunes of NAND memory specialist SanDisk
- Single-handedly consigning hard drive makers Seagate
(NYSE: STX)and Western Digital (NYSE: WDC)to history's scrapheap,
- And of course, how it's made PC chips from Intel and AMD obsolete, while boosting the fortunes of "mobile" chip IP-house ARM Holdings
To all of which, Macquarie responds with a hearty "Pshaw."
While admitting that the rise of the tablet PC is not exactly "positive for INTC," Macquarie maintains that "PC growth prospects still appear good ... IDC expects PC unit growth of roughly 17% [year-over-year] in [calendar year 2010] and 13% [year-over-year] in [calendar year 2011]."
Let's go to the tape
How likely is it that Macquarie is right about this? I wish I could tell you, Fool. Unfortunately, to this day Macquarie still does not submit its company ratings to Briefing.com for distribution, and since Briefing.com is our key data source for CAPS, that means we have no good way to track the analyst's performance.
What I can tell you, though, is that whatever its history to date, Macquarie is probably right about Intel and AMD this time. From any objective perspective, Intel does look attractive. The stock:
- Sells for 11 times earnings, yet most analysts expect it to grow at better than 12% per year over the next half decade.
- It almost always churns out more free cash flow than it reports as net income, so you know the quality of earnings are high.
- Intel sports a balance sheet laden with more than $20 billion cash, against just $3 billion debt.
- Why ... Intel even pays a dividend! 3.1%, which is more than generous in the tech space.
(As for AMD -- how do I put this nicely? Suffice it to say that the 4 P/E is a fluke generated by a generous litigation settlement last year, the free cash flow inferior to Intel's, debt higher than cash, and dividends non-existent. Draw your own conclusions as to whether I think AMD deserves anything more than a neutral rating.)
Foolish final thought
As for Apple, and the threat from iPad ... I don't mean to give Steve Jobs short shrift. But as Macquarie reminds us, while popular among consumers: "we believe the device's usefulness as a productivity tool is limited." In other words, PCs are not going away. And Intel should not be selling as cheaply as it currently is -- nor will it always.
My advice: Get while the getting is good (and the price attractive.)
Rich Smith owns shares of Western Digital. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 600 out of more than 170,000 members. The Motley Fool has a disclosure policy.
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