Analysts Debate: Is Intel a Top Stock?

The Motley Fool has been making successful stock picks for many years, but we don't always agree on what a great stock looks like. That's what makes us "motley," and it's one of our core values. We can disagree respectfully, as we often do. Investors do better when they share their knowledge.

In that spirit, we three Fools have banded together to find the market's best and worst stocks, which we'll rate on The Motley Fool's CAPS system as outperformers or underperformers. We'll be accountable for every pick based on the sum of our knowledge and the balance of our decisions. Today, we'll be discussing Intel (Nasdaq: INTC), the chipmaking giant.

Intel by the numbers
Here's a quick snapshot of the company's most important numbers.

Sources: Company earnings release and Yahoo! Finance.

There you have the numbers behind Intel's business. But is it a stock you should buy? Here's what we each think.

Travis' take
After all these years, Intel is still the market-share leader in the standard x86 processors, controlling 80.2% of the business to AMD's 19.1% share. The tug-of-war between the two companies has been going on for years, yet AMD has yet to get enough footing to encroach too much on Intel's territory.

Intel controls PCs, but that business has become less exciting for investors, while falling behind in smartphones and tablets is what has kept Intel's stock from advancing too far in recent years. As Intel plays catch-up, investors looking at the stock will find an opportunity for future growth. The first Intel Medfield-powered smartphone is now on the market, and it has gotten decent reviews. Intel is way behind ARM Holdings in the smartphone space, but it's all upside for investors from here.

In tablets, Intel has partnered with Microsoft in an attempt to knock Apple (Nasdaq: AAPL) off its tablet throne. Windows 8 will power the operating system of as many as 32 devices from Hewlett-Packard, Dell, Lenovo, Acer, and many others. Intel will of course provide the chips, and if all goes well, the combo can take a respectable amount of share from the iPad.

The smartphone and tablet upside is nice, but the real reason I like Intel's stock is that the company has an impenetrable lead in the PC business and the stock trades at a great price of just 11 times earnings. A 3% dividend yield sweetens the pot, and cash flow from operations of nearly $21 billion last year means cash will continue to be returned to shareholders. I give a big thumbs-up to Intel in this debate.

Alex's take
The biggest knock on Intel isn't that it's losing market share in PCs or servers, as it has both locked up tightly. Rather, it's that the company seems to have missed the boat on the mobile boom. I've pointed out before that Intel hasn't needed first-mover advantage to claim the market-share crown of any given segment it sets its sights on. Being able to muscle into new markets against a seemingly insurmountable tide is something few tech companies can do, but Intel's managed it before, and I remain convinced that it'll do it again. The key lies in the technology.

You might have heard about Intel's tri-gate (or 3-D) 22-nanometer chips, but few actually understand the importance of this development. MIT's Technology Review, one of my favorite tech blogs, dubbed it one of the 10 most important technological milestones of the past year. Why? The electrical current in a 3-D transistor has virtually no leakage, allowing for lower-power operation in a smaller space with superior performance. As anyone following the Intel-vs.-ARM battle knows, power efficiency has been a key reason for the latter's mobile success.

No other chipmaker has similar designs in the works -- ARM's most advanced designs now entering production are 28 nanometers -- and Intel Architecture Group VP Steve Smith recently told Forbes that current-gen 32-nanometer Atom chips are already within spitting distance of ARM architecture in terms of power use. Other chips suffer increased power leakage as transistor gate widths shrink, which poses significant hurdles for all of ARM's designs going forward. If the tri-gate works as intended, its minimal leakage (and, thus, superior power efficiency) could be an insurmountable obstacle for chipmaking rivals and thus ensure Intel's future dominance of the mobile space.

A generational lead in chip technology is a tremendous advantage, and Intel has the added bonus of being the last fully vertically integrated chipmaker left standing. Sean will mention (spoiler alert!) Intel's server-chip dominance, and Travis has pointed out that the company's renewed its Wintel tag team to make mobile inroads. New system-on-a-chip designs play to Intel's fabrication strengths as well and will be vital in capturing mobile market share when they roll off the production line. To sum up, there are a number of compelling reasons to invest in Intel now (including that Treasury-trashing dividend yield), and few reasons to stay away.

We might not get a lot of CAPS points in the near term from this pick, but slow and steady wins the investing race. I like Intel for the long haul.

Sean's take
After highlighting Intel as a great dividend you can buy right now and an extremely attractive addition to your IRA over the long term, I'll give you three guesses what my opinion is on the chipmaking giant -- and the first two don't count! There are three reasons I think Intel makes a great buy right now.

First, it's the king of microprocessors. Advanced Micro Devices can't hold a candle to Intel's growth and has actually ceded market share to Intel recently. Although it has yet to make an imprint in the rapidly growing smartphone and tablet marketplace, which is dominated by ARM Holdings' infrastructure, Intel has the hardware and balance sheet to claim serious market share. Considering that research firm NPD noted the average selling price of smartphones is falling, this should make it more affordable for consumers to purchase smartphones in the immediate future, which, in turn, will increase the demand for unit sales; all great news for Intel.

Second, Intel is the smartest cloud-computing hardware play, in my opinion. Everyone keeps trying to squeeze blood from a stone on the software side, but they're forgetting about the hardware potential. Intel recently released its Xeon E5-2600 chip, which is going to be incorporated in cloud-based servers. The chip, which has already shipped to industry leader Cisco Systems (Nasdaq: CSCO) has the potential to revolutionize data storage, although it will face large inroads, with Amazon.com's EC2 pay-as-you-go and S3 storage platform being the model other companies base their cloud platforms around.

Finally, Intel offers one of the most attractive dividends in the technology sector. Since 2004, Intel's payout has grown by an average of 34% -- annually! Currently yielding 3% and with a reasonably low payout ratio of 34%, it's not out of line to assume that more large dividend boosts could be in Intel's future.

There are very few companies that offer a better value and growth combination in the tech sector than Intel.

The final call
It's unanimous: We all think Intel will beat the market over the long term. To track this pick, we'll add an outperform CAPScall on Intel in our TMFYoungGuns CAPS profile. Take a look at the other picks we've made and how we're beating the market.

While Apple is by far the dominant player in the mobile sphere, it doesn't mean Intel's growth opportunity in the space isn't compelling. Chips are a key component of every mobile device, and here at The Motley Fool, we've outlined another chipmaker looking to take advantage of the Trillion-Dollar Mobile Revolution in one of our most recent special reports. Pick up your free copy today.