The Best Stocks for 2010: Intel

Before we launch into why I'm hot on Intel (NASDAQ:INTC), let's take a moment to get our expectations in line.

If we focus solely on the gauge of stock performance, we can point to some real screamers in 2009. Avis Budget Group, for instance, soared more than 1,800% from the end of 2008. Dendreon was up close to 500%.

Do I expect Intel to put up these kinds of numbers in 2010? Nope.

However, for investors looking for a rock-solid company that's a leader in its industry, is ready to take advantage of some very favorable tailwinds, and has very reasonably priced shares, Intel could very well be the best stock for 2010.

The chip champ
While investors shouldn't cheer lawsuits over anticompetitive practices, they are a sign of one of the main reasons Intel is such a great company to invest in -- its total dominance of its industry.

Sure, AMD (NYSE:AMD) also makes PC chips, and NVIDIA (NASDAQ:NVDA) is a tough competitor in the graphics chip market, but Intel is clearly the Michael Jordan of the PC chip industry. And leaders like Intel are typically able to deliver the most consistent growth and high-level margins in their respective industries.

But market share isn't the only place where Intel flexes its muscle. The company's balance sheet has only $2.2 billion in debt, compared to a massive $13 billion stockpile of cash and equivalents. That cash hoard has nowhere to go but up, since Intel's business generates way more cash than it needs to fund capital expenditures. This also gives the company plenty of cash to pay its growing dividend and buy back shares.

Tailwinds galore
Why Intel now? The company has quite a few tailwinds at its back that should help it boost earnings -- and allow the stock to outperform the market -- in 2010.

Microsoft's (NASDAQ:MSFT) Windows 7 recently hit the shelves, and thus far, it seems to be much more well-received than its predecessor, Vista. This should help drive new computer sales, which can't help but lift sales for the world's No. 1 PC chipmaker.

While PC makers like Dell and Hewlett-Packard have noted that increased PC sales thus far have been weighted towards consumers, there is strong evidence that corporations are sitting on an aging installed base of PCs, many of which will likely be replaced in 2010.

Speaking of corporate buyers, there's evidence that customers are really digging Intel's Nehalem server products. This is great news for Intel, since server products tend to carry higher margins. If corporate budgets get an upgrade in 2010, server upgrades could put some nice pep in Intel's earnings step.

And of course, we can't overlook the potential for a broad global economic turnaround to help prod both consumers and corporate customers to boost their computer purchases.

All at a very reasonable price
Normally, we'd have to pay a premium price for such a sterling company, but that's hardly the case with Intel right now. Compared to many of the other tech powerhouses, Intel's valuation stacks up very favorably.

Source: Capital IQ, a Standard & Poor's company.

And while those multiples look pretty attractive, Intel is also one of the few major tech companies with a serious dividend track record. Currently, Intel's stock yields 2.8%, but investors have good reason to expect the payout to climb in the years to come. Between 2004 and 2008, Intel's dividend payout has grown at a compounded annual rate of 28%.

Nothing's gonna ever keep you down
I fully expect that plenty of stocks will outperform Intel in the coming year. But if you want a company that will ride a cyclical upswing and beat the market in 2010, then use its financial strength and industry dominance to beat the market for years to come, Intel could very well be the best around.

Which is the best stock for 2010? See all 13 candidates here.