Intel -- Bargain or Doomed?

[Kerim]

(09-27-2013, 04:14 PM)fiveoh Wrote: I'm debating dumping the rest of my intel even though I would take a 10% loss on it. I just dont see them turning it around in mobile and their cash flow is getting lower and lower....

I remain pretty worried about Intel as well. As you can see over here, my portfolio is very exposed to INTC (see post #2 in that thread), and I am strongly considering paring it dow substantially. I've never written any covered calls, but this might be the time for me to try it. Collect a little premium with s strike price likely to have the shares called away from me.

(09-27-2013, 04:27 PM)hendi_alex Wrote: Matt who posts on my Income Investing and Beyond Board at Investor Village seems to be pretty savvy wrt to tech. He has had some well thought out posts related to both Apple and Intel. I don't think that he would mind me sharing this one in depth INTC post. I'm overweight INTC at 13% weighting but also have sold calls against 100% of the position. Have generally been long INTC for most of the past three years except for a few months when all shares got called. Cuurently my calls are laddered from $21 up to $24 and my average cost is a bit over $22. Dates go out as far as April.

Thanks hendi_alex, good read. I'm trying to remain hopeful that Matt is correct in his analysis, but I've been reading about INTC "righting the ship" for a looong time now with no apparent progress. Seems like Intel's plans are always about to pan out "next year." Meanwhile, the earnings and cash flow situation continues to deteriorate. Moreover, even if Matt's thesis is correct, it doesn't address the margins issue. Even if Intel is able to stabilize server and laptop revenues, and to make some inroads into mobile, I can't escape thinking that any gains they make in market share will be more than offset by eroding margins. I don't know much, but fear that chips are fast becoming commoditized in a way that will make it difficult for INTC to grow revenues again, even if it has popular mobile chips.

At any rate, I would not dump all of my Intel, just take it from heavily overweight in my portfolio down to average. It is now 9.4 percent of my portfolio's value. It would still be a healthy allocation at half that. Maybe this weekend I'll ask your advice over in the options area about how best to write the covered calls to unload some shares while collecting a nice premium.

[hendi_alex]

600 shares of my INTC are covering $21 and $22 October calls. So in a few weeks will be down to 1000 shares or about 8% of my modest portfolio. I'm not sure that I'll add any shares back unless the share price dips under $22 again. Depending upon the price, will consider adding when the next batch may be called in January.

[fiveoh]

What did you guys think of Intel earnings today? The lower guidance has me worried. PCs seem to be bottoming possibly... but they still don't seem to be gaining ground in mobile. They announced that Broadwell is delayed and they are wasting money on BS things like the tv box.

[Dividend Mantra]

I'm personally not a fan of INTC here. I'm hopeful they can turn things around with further inroads into mobile, but even then they face margin pressures to catch up.

I'm still holding on to 100 shares after recently selling 140 shares, but only if things markedly improve in 1Q 2014 and we see get a good picture of how Bay Trail is doing.

Best wishes!

[Kerim]

I remain pretty worried about INTC as well. I did end up selling about 12 percent of my shares. This was the first sale ever out of my DG portfolio, a move I don't take lightly. I continue to consider paring back even more. Even with the sale INTC is still a huge chunk of my portfolio. Fortunately, the current price is above my average cost per share, so I could scale back with a profit and no bad feelings.

The portion that I already sold was in an IRA, so I did not have to think seriously about taxes and accounting, but the remaining INTC that I've got is in a taxable account, so I'd have to specify which shares to sell and deal with accounting and tax consequences. No big deal, I know, but still bugs me.

Overall, I'm just getting the feeling more and more that tech names are not the best core holdings in a dividend growth portfolio. I think the long-term trend in tech is commoditization, and while there may be good plays out there, it is hard with most (all?) of them to be confident that they'll be around in a decade or two, much less still paying and growing the dividend.

[EricL]

The way I see it, INTC is a great story stock but with a great story comes risk. They could very well dominate the mobile chip market over the next decade and make gobs of money doing it, but there is little in the recent track record that proves to me that its a given. There are so many stocks out there with similar yields and more predictable earnings growth going forward.

That said, so far my swapping out of INTC into IBM isn't paying off very well, maybe tech in general just isn't a very good S.W.A.N. investment.

[Kerim]

So yesterday I sold off another 25 percent of my INTC holdings. This still leaves me with a very large pile of Intel – it is still my 4th or 5th largest holding, and still accounts for almost 7 percent of my dividend growth portfolio. So I remain heavily invested in the company, still rooting for its success, and still optimistic that they will get earnings moving in the right direction again, eventually. And I am happy to collect the healthy dividend while waiting for that to happen.

But as I’ve stated before, my confidence has been shaken, and I just was not comfortable with my previous exposure to the company at around 10 percent. The price has been up a bit in recent days, which I took to be a good opportunity to pare back my position. I sold the shares at a small profit, so it is hard to feel badly about the trade.

I’m happy to have a bit more dry powder for other opportunities as they arise. I am considering whether this move is part of shrinking my exposure to tech overall, or perhaps I will reallocate so that my tech holdings are simply somewhat more diversified.

Will certainly keep you all posted!

[hendi_alex]

I sold INTC in my daughter's account and replaced with CSCO shares. Cisco has aggressively increased the dividend over its three year payout history. The company has modest debt and almost $10 per share in cash. The yield is 3% with a 33% pay out ratio. Unlike INTC which is struggling in a somewhat mature market, Cisco is being fueled by the massive move to cloud computing. IMO Cisco remains a growth stock as well as being a new comer to the DG scene.

In my account all of the INTC is a covered call play, but the CSCO is in place as a longer term position.

[Kerim]

Alex -- I just did my first close look at CSCO ever, and reached pretty much the same conclusions as you. Detailed Cisco post over here.

[Kerim]

I had never heard about Intel's foray into retail shops. I put this solidly in the "Intel is doomed" category.

[fiveoh]

At least they didn't waste as much time and money on this as they did on the failed tv box.