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From among the stocks with its highest 5-star buy rating, Standard & Poor's selects a "stock for the week" for its The Outlook. The latest pick from the top-tier research firm is Intel (NASDAQ: INTC). S&P explains, "The semiconductor industry is in the early stages of an upturn. Stronger sales of PCs, competitive technological advances, and an enticing valuation should push the shares higher."
The analysts state, ""We think Intel has a key competitive advantage with its technology, which should lead to market share gains and better profitability. Essentially, we think that a very favorable demand environment, improving company fundamentals, and an enticing valuation are catalysts for the stock to outperform.
"Over the last couple of years, unit growth declined while mobile computers increased in popularity. Making matters worse, Intel was entrenched in a vicious price war with Advanced Micro Devices (NYSE: AMD) and ended up on the losing end for several quarters. Intel's desktop-segment market share fell from around 80% in early 2005 to 71% in late 2006.
"Against the ropes, the company shored up distributor relationships, priced chips more competitively, and attracted customers with its supply of new chips; it was thus able to turn the tide and improve its desktop segment market share to 72% in early 2007.
"We expect increasing desktop sales in emerging markets and an acceleration in the PC refresh cycle to provide growth opportunities over the next year, and we see Intel gaining market share as its Core-based chips migrate to the lower end.
"Mobile is the second-largest volume contributor and the fastest-growing segment by both volume and revenues. Similar to the woes in the desktop space, Intel's mobile ASPs and market share suffered in 2005-06. But by early 2007, the company recaptured some lost segment share, which currently stands at around 82%.
"Over the next few months, we see an interesting battle brewing as AMD releases its first quad-core offering, nicknamed Barcelona, and Intel launches a competing line of chips, nicknamed Penryn.
"If Barcelona lives up to the hype, we believe AMD could temporarily gain the performance lead. Ultimately, however, we think Intel will be very hard to beat as it release faster and more power-efficient chips and extending its technological lead.
"In the end, we see significant opportunity for share appreciation driven by our view of healthy growth for computing products, competitive technological advances, improving fundamentals, and attractive share valuations. With our target price implying potential appreciation of about 20% from recent levels, we have a strong buy recommendation on Intel stock."
Each day, Steven Halpern's TheStockAdvisors.com features the latest stock picks and investment ideas from the nation's leading financial newsletter advisors.
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