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Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and a competitive advantage in established markets, preferably with a favorable global trend as a support. With this in mind, Intel is worth an evaluation.Intel (NASDAQ: INTC) is the world's largest semiconductor maker, as measured by revenue and unit shipments, and is the dominant microprocessor manufacturer for personal computers.
In general, analysts expect F2008 revenue to increase 5-7%, after an 8% increase in F2007. The conventional wisdom in semiconductor analysis land now suggests that smaller/more-portable computer forms and media-rich PDAs will drive strong PC and PDA microprocessor sales.
Further, Intel remains the leader in next-generation chip technology, and its product mix remains superior. Gross margins should increase, as a result of lower unit costs and improved plant utilization. Also, high-performance chip prices should increase noticeably.
Another tailwind: the computer rehab cycle. Due to the anemic-growth U.S. economy, U.S. PC sales will not be as robust, but this will be offset somewhat by consumers 'upgrading the inside' by increasing processor power and RAM in their current machines, as opposed to buying new ones. The Reuters F2008/F2009 EPS consensus estimates for INTC are $1.25/$1.52.
Finally, when you possess market-share percentages as large as Intel's, there's always the chance that a competitor will slice at a less-protected segment. However, this year, for a variety of factors, less competition is expected.
The risks? Analysts are keeping an eye on the possibility of further erosion in PC sales, due to the slumping U.S. economy and INTC's core component/raw material costs.
The First Call mean rating for INTC is: Buy [36 firms]. Mean 2008 target: $27 [high: $33, low: $20].
Stock Analysis: Intel is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from INTC's shares. Sell/Stop Loss if you were to purchase shares in this company: $14.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
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