Stock Sale: Intel (INTC)

Those of you who have followed me know I'm a big fan of Intel (INTC).  I've made it known on several occasions that it is my biggest dividend growth holding.  I've been allocating Intel off and on since 2008 and was lucky enough to load up during the crash in March 2009.  The main reason it's my biggest holding though is because, despite reporting solid earnings throughout the years and steadily increasing its dividend by double digits each year, the stock price continues to be cheap.  I find it hard to pass up a good deal, and Intel has been a good deal for quite some time.

The stock had a nice run from the beginning of the year and into May touching a 52 week high of $29.  Since then it has bounced around the $26 and $27 level.  But the past couple weeks the stock has dropped to below $25 and has piqued my interest once again. So why did the stock drop nearly 5% in the past couple weeks?

The main reason for the drop is because of PC manufacturers HP (HPQ) and Dell (DELL) reporting poor PC sales in their recent quarters and forecasting slow growth. This led analysts to cut Intel's 2012 and 2013 sales estimates as they expect fewer chips to be sold.  This may be the case, but long-term investors shouldn't be concerned with a slight revenue miss. In fact, Intel lowered its full year guidance in July, so its likely they foresaw the PC growth problem well before HP and Dell reported it.

Instead of focusing on a potential revenue miss, long-term investors should be excited about future catalysts that can provide earnings (and dividend) growth. Microsoft's (MSFT) release of Windows 8 this Fall will drive PC sales as customers upgrade to the latest and greatest.  Growth in server sales has been offsetting the slow growth in PC sales and should continue to do so.  And Intel's entrance into the smartphone / tablet business, although later than investors would prefer, could be the primary driver for future earnings and stock growth.

Intel currently has a P/E of 10 which is a significant discount to the average semiconductor P/E of 15. Add a better than industry average dividend yield of 3.6% and the fact that it is THE dominating company in its industry makes it hard to pass up this stock sale.

Disclosure: I am long INTC, MSFT

Tags: [INTC] [MSFT] [DELL] [HPQ]