If you think Intel
So when Goldman Sachs
Why am I so surprised? First of all, I think it's crazy to sell Intel right now. Sure, the stock was significantly cheaper a couple of months ago -- until Intel set the record straight with a fantastic earnings report.
Could those ultra-low prices come back again? Sure, given the manic-depressive vibes Mr. Market sends out on Triple Witching dates, the day after a full moon, or Tuesdays in months that begin with a "J." Oh, and nearly every day in between.
But if so, that would most likely be nothing but an even better buy-in point. If you bought Intel shares and have grown tired of watching the chart move mostly sideways, I'd suggest sitting back to count your dividends until Mr. Market remembers to take his Risperdal. You can buy in at less than 11 times trailing earnings today, with very significant growth prospects ahead. These insane discounts can't last forever.
What Goldman sees and we don't
But OK, perhaps Goldman has seen something wrong with Intel that we mortals just can't grasp. And by "mortals," I also mean the 29 analyst firms that currently recommend buying Intel shares, and the 20 who straddle the fence at "hold." If anybody has the resources to dig up stuff we're missing, Goldman would be it.
So here's Goldman's sticking point: Intel's first quarter was artificially good because the company shipped far more chips than system builders passed on to their customers. Warehouses are bursting with unsold notebooks and other PC systems, and the backlash must hit Intel and its peers hard at some point.
Beyond blackballing Intel, Goldman also downgraded chip-making materials and equipment manufacturers KLA Tencor
Moreover, processor designers have overinvested in manufacturing equipment lately, which will lead to an ugly price war just to keep inventories flowing.
The argument makes superficial sense. Price wars hurt, there might be a glut building up in Intel's distribution systems, and perhaps some of the world's chip needs are shifting from Intel's x86 architecture to the ARM Holdings
I buy all of that. But that's still not enough to make Intel a sell.
You see, the stock is already priced for drastic imperfection. I mean, Intel is currently growing sales at a run-rate of more than 20% a year, and nearly doubling its earning in the process, and you'd buy that for 11 times earnings?
Even if Goldman's worst fears come true, I don't think we'd be looking at any kind of multiyear pricing trough, like the one AMD instigated with its introduction of 64-bit chips. Intel and friends might suffer for a quarter or two, and then we'll return to healthy growth again. Could long-term earnings growth dip below the 11% mark, thus making the current valuation seem sane? Not a chance.
Sorry, Goldman, but even big boys are wrong sometimes. In fact, the firm misses the mark on semiconductor stocks more often than a random coin toss. I agree when Alex Dumortier calls Intel a safer investment than gold.
Who's right and who's wrong? Only time will tell, but a careful observer can tell the difference. Add Intel to your Foolish watchlist by clicking here, and you'll be set to track the stock's every move.