Buy Intel (INTC)
Sell on the news, is it?
Well, thanks.
I thought Intel (INTC) would run away from me after yesterday’s (January 14) great earnings report but apparently traders have decided to take profits on the news ahead of the long Martin Luther Day weekend. And that gives me a chance to add the shares of Jubak’s Picks.
(I think it looks increasingly like the market will be able to depend on technology stocks for leadership in early 2010. Good thing because the other sector showing signs of leadership recently, financials, looks likely to stumble. See my post http://jubakpicks.com/2010/01/15/even-jpmorgan-chase-is-still-putting-new-money-away-to-cover-bad-loans/ )
Intel reported fourth quarter earnings of 40 cents a share, 10 cents a share better than Wall Street projections, and revenues of $10.57 billion (up 28.5% from the fourth quarter of 2008) and above the $10.17 consensus. Gross margin came in at 65% versus a Wall Street projection of 62.2%.
For the first quarter of 2010 Intel told Wall Street to expect revenue of $9.3 billion to $10.1 billion versus Wall Street’s pre-earnings report projections of $9.35 billion.
Intel’s results were especially strong for chips for servers where average selling prices increased, for notebooks, and for the low-power Atom processor designed for netbooks.
With Wall Street expecting an upturn in PC sales—which Intel’s results and comments confirmed—where did the surprise come from?
Some of it from a traditional Intel source, the extra margin that the company gets from relentlessly shrinking its chips. Intel is just starting to ramp its 32 nanometer lines to full production. Typically Intel sees costs drop and margins increase when it puts a new generation of production technology into full production. That seems to have started again in the fourth quarter and is likely to continue, I believe, in 2010.
In its conference call the company also noted that inventory at distributors fell in the fourth quarter from the third quarter of 2009 so it doesn’t look like the results came from stuffing the channel with unsold product.
The company’s decision to up capital spending to $4.8 billion in 2010 from $4.5 billion in 2009 also speaks to Intel’s belief that its chip business is moving into a multi-year growth cycle.
As of January 15 I’m adding Intel to Jubak’s Picks. The stock currently trades at 13 times 2009 earnings per share with Wall Street predicting earnings growth of roughly 50% in 2010. I’m setting a target price of $27.20 a share for December 2010. That’s 16 times my projection for $1.70 in earnings per share for 2010.
Full disclosure: I do not own shares of any company mentioned in this story in my personal portfolio.
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I’m with you on this one JIm. This is one of those chances to take advantage of the sometimes perverse reactions by the big money on Wall Street. Strange isn’t it? After the close they announce what has to be considered a pretty impressive eps and revenue beat. The stock goes up a little then drops 3%. This is one of those examples that keep me believing that rational individuals CAN compete in the market.
I picked up some INTC early in 2009 because it had a nice yield and seemed to have a lot of upside. I remember Jim’s dicussion of INTC and how they were investing during the downturn so they could cash in when business picked up. Looks like this is happening. Love the margin increase.
From TheStreet.com:
Cramer said that Intel actually had a good quarter, with strong gross margins. “I listened to the conference call and I like it,” he said. “[Intel] is the cheapest I have seen it in 20 years.”
Good Post Jim!! I’m in!!
China Reserves Hit Record $2.4 Trillion as Loan Growth Quickens
http://www.bloomberg.com/apps/news?pid=20601087&sid=at7RtqkhdSaU&pos=1
When Jim Cramers “picks” are on paper, when he accounts for each “buy” and “sell” prediction, on paper, and all of his gains and losses, I’ll listen to him. In the mean time, no matter how many bells and whistles he employs, I don’t follow his “advice”… I come here for Jim Jubaks advice, not the Jim Cramer show..
Jim,
I do like INTC, but I am confused about timing.
In early November, when computer sales started to pick up, INTC was $18.50 and everyone was predicting bright quarter for INTC. Now, after it dropped only 3% from its high of $21.55, it is suddenly a “BUY”.
Why?
Why didn’t you buy it at $18.50? or more recently (mid of December) at around $19.00?
Full disclosure: I bought it both times on those dips, but I am not buying it now.
Very interesting article from:http://www.purchasing.com/article/441811-China_Metals_Perception_versus_reality_in_pricing.php
China Metals: Perception versus reality in pricing
Jim,
Do you think it would be helpful to create a place on your blog where people can post information that they themselves have researched about particular stocks that you hold?
Maybe a link on the side bar that will take us to a page that list all holdings in each portfolio where users can add links to information that they have found.
It may help your research, as we may be able to find some things that you haven’t. You could (And we could) easily peruse information related to individual holdings that we may be interested in, rather than having to go through every blog, and every posting to find something we are looking for. It would also enable us to post links to stories regarding particular stocks in one place, rather then posting stories about Gold on a blog about Coal…
Vale to Grab Market Share From BHP, Rio as Ore Demand Surges
http://www.bloomberg.com/apps/news?pid=20601087&sid=aEYess.Q50lY&pos=3
Iron Ore Demand From China Drops After India Imposes Export Tax
“The tax may make iron ore from Brazil and Australia more attractive to Chinese buyers, benefiting suppliers including Fortescue Metals Group Ltd. ”
From:
http://www.bloomberg.com/apps/news?pid=conewsstory&tkr=FSUMF%3AUS&sid=aFGUE0o6GZOY
Jim,
Curious, do you still post on the message board portion of MSN?
They still have a “Market Talk With Jim Jubak message board” section on the page.
It looks like more and more crazys are posting there, since you left…..
Hate to see your name affiliated with some of those discussions….
Baosteel delays price rise for national interest – Report
http://steelguru.com/news/chinese.html
China Inflation May Quicken, Hurting Banks, Utilities, BNP Says
http://www.bloomberg.com/apps/news?pid=20601068&sid=ahi_1BRYKa6o
DJ,
Thanks for sharing all those links. Good info!
Iron ore tipped to rise up to 40%
From
Business Spectator.AU
http://www.businessspectator.com.au/bs.nsf/Article/Iron-ore-tipped-to-rise-up-to-40-pd20100119-ZTJTD?OpenDocument
“Iron ore spot prices have recovered substantially from the abrupt fall during the global financial crisis, and Rio Tinto Ltd’s production fourth quarter report, which included 47.2 million tonnes of iron ore, showed the miner is well placed to take advantage of the rebound.
BHP and Fortescue are due to hand down their respective reports on Wednesday.
According to the Herald Sun, Goldman Sachs JBWere has upgraded its iron ore outlook for this year to a 35 per cent increase, while a report from The Sydney Morning Herald says the figure could be 40 per cent.”
China’s appetite for ore soars
CLANCY YEATES
The Sydney Morning Herald
January 18, 2010
http://www.brisbanetimes.com.au/business/chinas-appetite-for-ore-soars-20100118-mgra.html
Opposition growing to iron ore JVs in Australia
From: Steel Guru
http://steelguru.com/news/raw_material_news/newsid/MTI5MTky/title/Opposition_growing_to_iron_ore_JVs_in_Australia
FT reported that by combining their iron ore operations in north western Australia, Rio Tinto and BHP Billiton have crafted a deal that could potentially become one of the most lucrative seen in the mining industry. But rising opposition from steel producers promises to sharpen regulatory scrutiny this year, making the agreement’s approval anything but certain.”
Cyclical company + blowout earnings= top of the cycle. Be careful.
Iron ore price negotiations -Deutsche Bank hikes forecast to 35 pct
- 18 Jan 2010
Deutsche Bank predicts that the contractual price agreed by the top three iron ore suppliers with steelmakers for the year of 2010 is likely to reach USD 101 per tonne, 35% higher than the benchmark price of 2009.
Deutsche Bank believes that the world iron ore supply will be unable to meet the demand this year. The supply and demand will respectively reach 1.855 billion tonnes and 1.876 billion tonnes.
Currently, more than 50% of China needed iron ores are supplied through imports. The China Customs discloses that the country imported iron sands and concentrates of 62.16 million tonnes in December 2009 jumping over 80% from a year earlier. The figure reached 628 million tonnes in the full year, leaping 41.6%.
Because of global economic recovery and bulk commodity markup, the prices of iron ores and coking coals have both surged since the beginning of 2010. On January 8th India spot price for iron ores with a tenor of 63% rose to USD 134 per tonne.
I’d be interested in another update on this one…
Half way through the year, you raised the target goal, but now one year later, it has fluctuated back to it’s starting position.
So, do you still foresee growth, or is this one just going to sit for a while?