Intel Stock Is an Undervalued Buy at Its 52-Week Low

Stocks to buy

Intel (NASDAQ:INTC) stock recently hit a new 52-week low as tech stocks have been hit hard due to a gloomy market outlook. Most high-beta technology stocks have plummeted recently due to a fear of yield curve inversion, which is a leading recession indicator. In addition, risk-aversion is causing all kinds of problems, causing many new market participants to run for the hills as a bear market emerges, subsequently causing the market to overshoot to the downside.

Despite the troubled market sentiment, many technology stocks are oversold, including Intel. I’ve had a thorough look at INTC stock’s prospects, leading me to think that it’s a must-own at its current price. Here’s why.

INTC Intel Corporation $36.90

INTC Stock From an Operational Perspective

Global semiconductor demand is still growing strongly. The industry’s latest top-line data reveals a 21% year-over-year increase in April sales. According to Semiconductor Industry Association CEO John Neuffer, “global semiconductor sales have increased by more than 20% on a year-to-year basis for 13 consecutive months, indicating consistently high and growing demand for semiconductors across a range of critical sectors.”

Although supply-chain issues persist, Intel owns a solid market position, as indicated by its gross margin of 54.32% and its return on invested capital of 8.67%. Solid market positioning gives the firm bargaining power over its suppliers, which could see it survive transitory supply-chain hurdles.

Furthermore, Intel exhibits high-quality commercial prospects. INTC still holds 63.5% of the central processing unit (CPU) market share. Despite the abrupt growth of the graphics processing unit (GPU) market, CPUs still represent a market that’s 10 times larger. Furthermore, CPUs have garnered renewed attention lately due to their application in artificial neural networks.

The company recently beat its first-quarter earnings target by 8 cents per share amid achieving key production milestones and product delivery goals. During the quarter, data center sales continued to rise, posting 22% year-over-year growth, network and edge group sales increased by 23%, and Intel’s foundry service revenue more than doubled to $283 million.

Assessing INTC’s Price Level

Intel stock is undervalued after dropping more than 28% since the turn of the year. I decided to utilize a relative valuation approach in my analysis, which accounts for mean reversion. Firstly, INTC stock’s price-to-earnings ratio is at a 33% discount to its 5-year average, suggesting that its earnings per share prospects are underpriced by the market. Moreover, INTC’s price-to-earnings ratio is at a peer group discount of 53%, implying that it’s a significantly overlooked stock.

Another factor that could support INTC stock from here onwards is its dividend profile. The stock sports a forward dividend yield of 3.9% with a dividend coverage ratio of 4.3%, conveying that INTC is a top-class dividend stock pick.

Flimsy markets stimulate demand for high-dividend stocks as investors flee risk-on assets. For example, high-dividend stocks have outperformed the S&P 500 on a relative basis in the past year, conveying investors’ “guaranteed yield-seeking” attitude during trying economic times. Thus, the current market environment could be suitable for Intel stock.

Source: KoyFin

Intel stock is undervalued at its current price. The company owns a solid market share, exhibits attractive dividend properties, and provides innovative solutions. In addition, the market’s overreaction to a possible recession has left the stock oversold at a relative strength (RSI) of a mere 30, suggesting that a lucrative entry point has presented itself.

On the date of publication, Steve Booyens held an indirect long position in INTC. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Steve co-founded Pearl Gray Equity and Research in 2020 and has been responsible for institutional equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London and is working towards his Ph.D. in Finance, in which he’s attempting to challenge the renowned Fama-French 5-factor pricing model by incorporating ESG factors. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s articles on InvestorPlace form an interesting juxtaposition between mainstream opinion and objective theory. Readers can expect coverage on frequently traded stocks, cryptocurrencies, crowdfunding, and ETFs.

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