Both Intel (NASDAQ:INTC) and Micron Technology (NASDAQ:MU) shareholders have had a fairly rough go of it so far in 2016. Micron's stock price is down more than 27% year-to-date. Intel's stock has fared better, dropping "just" 5% this year as it continues its transition away from a reliance on the slowing PC market.
For value investors, stocks under pressure are often equated to sound, long-term investment opportunities. In the case of Intel and Micron, one stands head and shoulders above the other for such patient investors.
The case for Micron
Micron poses an interesting dilemma for investors. On the one hand, analysts are fairly bullish given its consensus $15.46 target price. As of March 30, Micron shares were trading at just $10.48, which would appear to be a signal of a stock with a ton of upside, assuming the pundits are correct. Now add in Micron's recent earnings per share beat, and what could go wrong? Unfortunately, quite a few things.
Prior to its fiscal second-quarter earnings report, Wall Street had been expecting Micron to generate $3.05 billion in revenue, compared to $4.17 billion a year ago, and earnings of negative $0.08 per share. Though Micron's actual $2.93 billion in sales disappointed, the good news was that its $0.05 EPS loss handily beat expectations, due in large part to CEO Mark Durcan's aggressive cost-cutting efforts.
That said, even Durcan's expense reduction plans couldn't prevent Micron's gross margins falling from 25% to 20%, sequentially. And therein lies part of the bad news. Micron's primary product lines -- dynamic random access memory (DRAM) and NAND non-volatile storage technologies -- are both under extreme pricing pressure. According to Durcan, DRAM pricing dropped 10% compared to the year-ago quarter, and sales also declined.
The results were even more troubling for Micron's NAND flash memory unit. Though sales volume increased last quarter, the 15% decline in average selling price resulted in a 6% drop in revenue. Then there's the small matter of electronics giant Samsung undercutting the DRAM market, making life even more difficult for smaller players like Micron.
The case for Intel
Intel has been under pressure because of the declining PC market. However, Intel isn't as reliant as its smaller rival on selling its advanced DRAM and NAND products. Sure, Intel reported a record year for NAND revenue in 2015, but that took a backseat to its other, record-breaking data center and Internet of Things units.
Last year's revenue was flat compared to 2014, and Intel ended 2015 by eking out a 1% increase in sales, from $14.7 billion in 2014's Q4 to $14.9 billion. Its full-year 2015 results were particularly impressive given that Intel's primary revenue driver – client computing – saw sales decline 8%. The drop in PC-related sales from Intel's client computing unit was offset by an 11% jump in data center revenue, and a 7% increase from its IoT division.
As the world shifts to a more cloud-based, IoT, data-centric environment, Intel will rely increasingly on its data center, IoT, and wearables solutions businesses to drive growth. Some investors aren't willing or able to wait as a company works through a significant business transformation, but for those who are, Intel and its 3.2% dividend yield make a compelling argument for growth and income investors.
Which is the better buy? Intel's expansion into new, fast-growing markets to offset waning PC sales, combined with its stellar 3.2% dividend yield, set it apart. Micron's relatively narrow focus on DRAM and NAND sales -- both markets under extreme pricing pressures -- help make this an easy decision: Intel is the runaway winner.