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Intel is dead money, this fund manager says

Greg Newman

Is Intel dead money?

Growth prospects are slim for Intel Corp (Intel Corp News, Stock Quote, Chart NASDAQ:INTC), says Scotia Wealth’s Greg Newman, who argues that while the semiconductor company still has a number of pluses going for it, your money could do better elsewhere.

Ahead of Intel’s second quarter due on Wednesday, investors will be looking for good news from the company’s data centre segment, now Intel’s central focus after the decision was made in April to get out of the 5G smartphone business. Data centre revenue dropped five per cent year-over-year over the company’s first quarter, one in which Intel slightly exceeded analysts’ expectations on both earnings and total revenue.

But the stock dropped on the Q1 report all the same, thanks to disappointing guidance from management which called for full year revenue of $69.0 billion, significantly lower than the consensus expectation of $71.05 billion. (All figures in US dollars.) New CEO Bob Swan called it a “more cautious view” of the year, although he said that he expects market conditions to improve over the second half of the year.

Totaling up the pros and cons, however, Newman thinks the stock is a pass for the time being.

“They lowered guidance on Q1, they’re exiting the 5G smartphone market after Qualcomm and Apple settled and their data centre business is weak, as well, with Chinese consumers buying less. Really, we have very little growth over our forecast horizon for them for 2019 to 2021,” said Newman, director of wealth management at Scotia Wealth, in conversation with BNN Bloomberg last Thursday.

“So, it’s not really growing here in this environment and there are really no reason to buy it, in my view,” he said.

“But it is pretty cheap at 11x and you do get paid this nice dividend,” he says. “If the trade wars settle and once China’s growth starts to strengthen, it’ll probably be a good buy then but I think it’s dead money here for new money.”

Intel in April announced it would be exiting the 5G modem business, a conclusion that came shortly after Apple and Qualcomm settled their years-long patent dispute with a six-year patent agreement and a multi-year deal naming Qualcomm Apple’s iPhone parts supplier, effectively knocking Intel to the sidelines.

“In light of the announcement of Apple and Qualcomm, we assessed the prospects for us to make money while delivering this technology for smartphones and concluded at the time that we just didn’t see a path,” said Swan to the Wall Street Journal in April.

At the same time, Newman says that INTC could be a long-term consideration.

“If you’ve got it I think I’d sell some calls against it and get paid twice, from the dividend and the call income,” Newman said. “I don’t think this stock is going to hurt you in the long term and it’s a good quality stock, but there are few catalysts for it to grow here unless we see China starting to really turn it around.”

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About The Author /

Jayson MacLean
Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.

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