Intel

Mid-Week Update 08-25-10

In your upcoming September issue of The Complete Investor, our Growth article highlights some of our well-performing tech stocks. Despite the weak domestic economy, our franchises have bucked the trend – outperforming their own, and Wall Street’s, profit and sales expectations. Among others, we highlight Intel (INTC), the largest semiconductor company in the world, in regards to its stellar earnings report for the second quarter, as well as its desires to make a bigger splash in the mobile chip market with a proposed acquisition. After the issue went to print, however, Intel surprised the market with a different major acquisition.
 
Last Thursday, Intel announced its largest acquisition ever with the $7.68 billion purchase of security software maker, McAfee. Both boards unanimously approved the deal which will provide McAfee shareholders with $48 a share in cash – a 60 percent premium over the stock’s previous closing price. At first glance, the move seemed curious with a dominant hardware company making an expensive foray into software. The multiple, at 3.3 times revenue, is high relative to the average premium paid for internet security acquisitions. According to Bloomberg data, there have been 171 acquisitions in the internet security business over the last five years – the median sales multiple was 2.07. Of course, Intel could easily afford it with roughly $18 billion in its cash coffers.
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Weakening Economy vs. Big Deals: 08-19-10

Evidence of slower growth for the U.S. economy continues to mount, putting pressure on stock prices while boosting bonds. Yet the reality is that stocks are down only slightly for this week so far.Read more...

Market Update 07-20-10

The stock market remains in consolidation mode. Though they did manage to rally a bit yesterday, the share selling has resumed today. Traders still can’t point to any real positives out there right now that would fuel a meaningful rally.  
 
This is a week light on economic data releases. The emphasis is on housing. Yesterday homebuilder confidence fell to its lowest level since April 2009. This morning Housing Starts were well below forecasts, though Building Permits, an indication of future building activity, did come in above expectations. Traders will also be watching the Conference Board’s Index of Leading Economic Indicators out on Thursday. Expectations are for a three-tenths of a percent contraction; anything worse will be used as another reason to exit positions.
 
Not surprisingly, Wall Street is tempering its view of the economy. Morgan Stanley’s Stephen Roach thinks the US is at the start of “protracted sluggishness.” Strategist David Rosenberg has a more bearish view: He thinks a recession is virtually assured given the sharp drop in the ECRI’s Weekly Leading Index growth rate. And from were we sit, it looks like the Federal Reserve is going to have to initiate another round of quantitative easing to keep the economy moving in the right direction, though it will likely require more selling to galvanize the Fed into action.
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Slower Economy, Rising Stocks: 07-15-10

The Federal Reserve has confirmed what we already know. It downgraded expectations for the economy, according to minutes released yesterday of the latest policy meeting in late June.
Fed officials now expect growth to be slower this year than previously estimated, with inflation also lower and unemployment higher through 2012 than previously forecast. They also said they expect it to take as long as six years before the economy returns to the level of sustainable, moderate growth and unemployment near 5 percent that was in place before 2007.
 
In addition, the Fed said further central-bank action might be necessary if the economic outlook "were to worsen appreciably." But the consensus outlook remains that the economic expansion likely will be strong enough to avoid additional action.
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Mid-Week Update 07-14-10

Second quarter earnings season is finally upon us. After first-reporter Alcoa released positive results on Monday, Growth Portfolio member and technology bellwether Intel (INTC) reported blowout numbers last night after the market’s close.

The largest computer chip maker in the world collected $2.89 billion in net income, or 51 cents a share, during the second quarter – easily outpacing consensus estimates of 43 cents. Importantly, the semiconductor giant accomplished this through outperformance on both the top-line (revenues were $10.8 billion versus expectations of $10.3 billion), and the bottom line, with further gross profit margin improvements (67.2 percent versus 50.8 percent in the same period last year). With this strong showing, the company upped its gross margin estimate for the full-year: to 66 percent from a previous prediction of 64 percent.

Intel’s forward-looking guidance also beat expectations. For the current quarter, the company now expects total sales to be $11.6 billion – plus or minus $400 million. Analysts had estimated $10.9 billion, so Intel’s most bearish guidance now exceeds the average analysts’ expectations by $300 million. CEO Paul Otellini cited higher enterprise spending as the catalyst behind the impressive results and forecast. Corporate customers are replacing old desktops and laptops, while other companies like Google and Facebook are increasing the size of their server farms.Read more...

Where The Growth Is: 04-15-10

Our mission is to help you generate the income you need while also achieving long-term growth. This means focusing on financially strong areas of the markets that offer good price-appreciation potential.

Several reports this week illustrate the merits of this approach for your investment portfolio.

Intel (INTC), a member of our Growth & Income Portfolio, reported impressive results for its first quarter. Intel's broad strength is shown by three sets of numbers. First, revenue soared 44 percent from a year ago to $10.3 billion. Second, quarterly earnings almost quadrupled to $2.4 billion. And Intel's gross profit margin expanded sharply from 45.3 percent to 63.4 percent.

To be sure, the numbers were bound to look good from the deeply depressed year-earlier levels. Even so, the size of the improvement is dramatic, particularly for such a large company that dominates its market. The results indicate strength not only there, but also in the overall technology sector. They also suggest that the global economy is now doing better than previously expected.

Look now to China. Its economy jumped 11.9 percent in the first quarter of this year from a year earlier, the government said Thursday. This is another solid indicator of an accelerating recovery from the global economic crisis.

China's first-quarter growth rate is the highest in three years, and it comes on the heels of the 10.7 percent expansion in 2009's fourth quarter. First-quarter 2009 growth, when the global recession was hitting bottom, came in at 6.2 percent.Read more...

Mid-Week Update 04-14-10

Earnings season is just getting underway and the first major report out on Monday, from Alcoa, left many investors disappointed. The largest U.S. aluminum producer managed to cut its losses from $497 million during the same period a year prior to $201 million this quarter, but the market expected more from the company’s sales, which grew only 18 percent to $4.89 billion. By contrast, aluminum prices have risen by roughly 50 percent over the last year. Alcoa, a bellwether for the performance of the overall market, given the wide use of its product, did not set the right tone.

However, the outlook improved late yesterday when Intel (INTC), which is part of our Growth Portfolio, reported its first quarter results. By almost all measures, the results were impressive, with Intel having its best first quarter since the company’s founding in 1968. This suggests that other technology companies may be releasing strong figures this quarter as well; but with Intel’s market share of computer processors over 80 percent, the results more importantly serve as a proxy for end demand and perhaps a bellwether for economic health.Read more...

Mid-Week Update 01-13-10

It’s obviously still very early, but earnings season has not gotten off to a good start. Aluminum giant Alcoa kicked off the fourth quarter reporting period on Monday after the market close and got it off on the wrong foot. Revenues were up together with higher metals prices, but profits failed to meet expectations. The Street had expected a profit of six cents per share, but Alcoa earned just one cent per share, excluding one-time charges, thanks to higher energy costs that cut into margins. Including the charges, Alcoa lost twenty-seven cents per share. Alcoa shares dropped sharply on the news, but we’re more concerned for what the report will mean for other companies.
 
As we noted on Monday, energy costs have climbed rapidly and have put our long-term key in the negative-to-neutral range, and edging closer to a sell signal. Copper and other major materials are well off their lows too, and as we’ve written extensively rising energy and commodity costs act as a brake on any economy, let alone one that just may be starting to recover.
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