Recent Buy

Well, Ben Bernanke, the Federal Reserve Chairman, recently announced the Fed is going to buy $40 billion worth of mortgage bonds per month until unemployment eases and the general economy improves. There is no definitive time frame for what is now QE3 (3rd round of Quantitative Easing), since the end of it will only come when the economy improves…and nobody knows when this will happen. The new “QE3: To Infinity and Beyond!” is designed to keep interest rates low, which is supposed to spur lending and improve hiring in the private sector. This may or may not actually help, and may actually lead to higher inflation down the road due to the printing of new money to pay for the bonds. Essentially, the Fed is swapping books with banks, exchanging money for debt.

I’m no economist. I’m just an everyday guy who works at a car dealership, trying to live well below my means and invest enough of my savings to live off of before 40 years old. I don’t know what’s going to happen, and although I think QE3 is a bad idea for a number of different reasons, I simply cannot predict the future. Because of this, I continue to do the only thing I know how to do: invest in high quality companies at attractive long-term prices.

The stock market certainly liked the news of QE3, most likely because of the liquidity it provides the economy and the profitability it may provide to U.S.-based firms due to a weakening dollar and their goods becoming cheaper to overseas markets. Over the last 5 days, the Dow Jones Industrial Average is up over 286 points, and over 2%. That’s just in one week! But, as I always like to remind everyone: I don’t invest in the market, as I’m not an index investor. I invest in individual companies, and I consider a company’s valuation on a case-by-case basis.

As part of my Recent Buy series, I try to let my readers know of any equities I purchase soon after the transaction is completed. This is just one way I try to document my progress toward early retirement and financial independence.

I purchased 48 shares of Intel Corporation (INTC) on 9/18/12 for $23.22 per share. This is a company I already own a percentage of, and have a position in. This brings my total ownership of INTC to 170 shares.

INTC is a bit of an enigma. It’s been an extremely dominant player in the PC market over the last decade or so, as part of the “Wintel” team. It has forced competition like Advanced Micro Devices (AMD) into an afterthought. INTC has a huge R&D budget, which has allowed it to build extremely powerful chips and keep its large share of the PC market active even as technology rapidly changes.

However, it has been slow to adapt to the tablet/mobile platforms and the lower energy chips these devices require. INTC and its dominance in making high performance chips that consume energy has worked a bit against Intel here, but INTC has developed the new Atom microprocessor which consumes significantly less energy and is made for the mobile platforms that are becoming more popular. INTC is acutely aware that the tablet/mobile devices aren’t going away, and there is tremendous growth ahead for this segment.

Investors in INTC may have been given a gift here. Because of Intel’s slow move to mobile, the valuation has been compressed to significantly low levels. It’s certainly a value play here, with a P/E ratio of 9.90. If you believe that INTC will eventually be a large player in the mobile/tablet space and that PC’s aren’t dead as some analysts claim, then INTC is a solid long-term value here. Although I don’t want technology to have a large weighting in my portfolio, due to the ever-changing nature of the sector, I think INTC warrants attention at these levels.

The entry yield on my purchase is 3.87%, which is very solid for a dominant multinational company. INTC has a 5-year dividend growth rate of 14.4%, with 9 years of consecutive dividend growth. This purchase will add $43.20 to my annual dividend total based on the current payout of $0.225 per share per quarter.

Some analyst opinions on my recent purchase:

*Morningstar currently rates INTC as a 4/5 star valuation.
*S&P currently rates INTC as a 3/5 star Hold.

I’ll update my Freedom Fund in early October to reflect my recent addition.

Full Disclosure: Long INTC

What are you buying?

Thanks for reading.

Comments

  1. says

    Purchases in the future, I wish it worked like that. I like INTC and will be getting some more at the end of next week barring a major reversal in it’s share price between now and next Friday. I’ll be picking up the shares through a put option I sold. Sadly I could have got the shares cheaper but it’s still below fair value as I calculated it. Great buy on Intel. If they wouldn’t be such a large position I’d be adding more.

    • says

      Also meant to add that PC sales are highly correlated to employment growth which we know hasn’t exactly been great. If unemployment does turn around and they can make small inroads to mobile/tablet then they will be doing great.

    • says

      Passive Income Pursuit,

      I would agree that some of the PC growth has been slowed due to large unemployment figures both here and abroad. Larger macroeconomic forces have hurt INTC and its competitors alike. Certainly if businesses aren’t hiring, they don’t need computers at empty desks.

      I don’t think the PC is dead. I’m typing this comment right now on a laptop. Even with a slowing PC market, they will eventually find their way into the mobile space. They also still have a large server business.

      Best wishes!

  2. says

    I too bought INTC last week. About the same price as you too. I had a limit order in for 22.50 (4% yield point) but I canceled it and just bought the stock. I’m very pleased with the purchase since I’d been waiting awhile to add it to my portfolio.

    • says

      wes mantooth,

      Thanks for stopping by.

      Great buy on INTC. As long as it isn’t an overwhelmingly large position, I think it’s a solid value play…especially if they can make their move into the growing mobile/tablet segment.

      The 4% yield at $22.50 would have been a great price too, but either way you cut it the company is on sale right now.

      Best regards.

  3. says

    Nice buy. I will likely be putting in a limit order this week. I like the company longterm even though they were slow to the mobile space. ARMH is their biggest competitor in mobile but with their huge R&D budget It is just a matter of time for them to catch up. They are already making some headway and I believe this recent weakness has presented a good buying opportunity.

    • says

      austinbroker,

      ARMH is certainly doing well with their mobile chip business, but they are priced for perfection with that P/E ratio over 56.

      INTC is at a crossroads. They will either push forward to new heights here, or they will slowly die. With so many resources at their disposal, including that large R&D budget, I can’t imagine they’ll languish around and wither away. They have the tools to succeed, but whether or not they properly execute remains to be seen.

      These questions are the reason why INTC is on sale. I think seeing as how mobile is still relatively in its infancy, investors will be glad they got in now.

      Take care!

  4. says

    Just pulled the trigger on INTC myself. Was underweight on Tech as a whole and agree that there’s a lot of value under $24 with intel. Looking at ITW right now, and recently initiated a position in JPM @ $35.41. Been a while since I liked a bank stock. Am still underweight in the financial sector as there isn’t a lot to offer IMO, but I couldn’t help myself at that price-point. Glad you’re back to your old blogging ways DM.

    • says

      Art,

      Great buy on INTC. Definitely some solid value here for a long-term investor. Short-term hiccups may be present due to some macroeconomic events, but I think we’ll come out ahead over the long haul.

      I don’t follow JPM, but as far as bank stocks I like USB, WFC for the majors and I like some regionals like my SBSI holdings. Canadian banks (big 5) are also pretty strong.

      Thanks for stopping by! I appreciate the support. :)

      Best wishes.

  5. says

    OK, I’ve looked at INTC and found that they have some impressive balance sheet improvement over the past 6 years. These are rough numbers, but revs, dividends and earnings are up 75% or more. Also, through a buyback program, share count is down 10% (it could be higher but they have issued stock awards along the way).

    This is a formula to make money. This company has demonstrated that its performance is in contrast to the rap it gets from the professional class.

    Since they had a ‘bad’ quarter we are seeing price weakness. I want the best price, a margin of safety, say at that 4% yield ($22.50). It would also depend on what else is out there to buy.

    • says

      SFI,

      Getting in at the 4% yield level would be great, and that may signal a bottom on this stock. I personally felt compelled to buy it when I did, but cheaper is definitely better.

      I agree with you on the formula to make money. They’ve been growing revenues and shareholders have been reaping rewards in the share buybacks and dividend raises. I think INTC will be a winner long-term.

      Best regards!

    • says

      DGM,

      I’m hoping that INTC’s new architecture, including the Atom chip, really makes inroads in the mobile/tablet space. This is still a powerhouse company and I’m not counting them out.

      In this especially heightened market, INTC is one of the few clear-cut value plays out there, in my opinion.

      Best wishes!

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