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Is Intel Corporation (INTC) a Buy for 2013?

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The shift in consumer patterns away from PCs and towards smartphones and tablets has been a big trend in the last few years. While Intel Corporation (NASDAQ:INTC) hasn’t been hit nearly as hard as fellow chipmaker Advanced Micro Devices, Inc. (NYSE:AMD), the stock is still down 16% in the last year- which is roughly the rate at which earnings declined in the third quarter compared to the same period in 2011. The 10-Q for the third quarter of the year also disclosed a 5% decrease in net revenue, after Intel had managed to increase its sales in the first half of 2012. It’s possible that this was just the result of random fluctuations, but given the industry’s troubles it seems more likely to be a pattern that will continue in the future. If there was a bright side to the quarterly report, it was that only about half of the drop in Intel’s pretax income was due to poorer business conditions. Just as important a culprit was a large increase in research and development expenses; arguably, these might be considered investments rather than costs.


Intel’s troubles didn’t keep it off our list of the ten most popular tech stocks among hedge funds for the third quarter of the year, as 44 funds and other notable investors in our database of 13F filings reported a position. See more tech stocks hedge funds are crazy about. Billionaire Ken Fisher’s Fisher Asset Management owned a little over 19 million shares of the stock (check out Fisher’s stock picks). Renaissance Technologies, whose founder Jim Simons has become a multibillionaire, had Intel Corporation as one of the five largest positions by market value in its portfolio (find Renaissance’s favorite stocks). AQR Management, managed by Cliff Asness, was also buying the stock during the quarter.

Intel Corporation currently trades at 9 times trailing earnings, but even sell-side analysts are convinced that the company will fail to maintain its current business in 2013. Consensus earnings per share are $1.94, while $2.11 is expected for 2012; this implies a forward P/E of 11. Intel increased its dividend payment last summer, and the yield is currently 4.4%; that’s quite high for a technology company, and for income investors it may overcome concerns about the business, but at 11 times earnings we would want to see at least some earnings growth and we’re worries that Intel may not be able to deliver.

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