Intel will join the Dow Jones Index in 2022, replacing Cisco Systems, the only change to the popular revenue and value investment strategy.
Among the blue chip stocks in the technology sector, Intel (INTC) stock has been underperforming in the past 12 months. During this period, the stock has been in a sideways consolidation state. Of course, the weakness in INTC stocks is due to concerns about growth. However, the stock has a price-to-earnings ratio of 9.8, which seems to be undervalued.
Of the 30 stocks in the Dow Jones Industrial Average, the Dow Jones Dog is the 10 stocks with the highest yield.
Many investors hold earnings-oriented dogs and rebalance their portfolio of 10 stocks at the end of each year. Dogs is also a counter-trend strategy that allows investors to access financially strong companies that are usually not popular with investors.
After the strategy lags behind the overall index for the fourth year of the past five years in 2021, it could be a good year for Dogs. Dogs has a return of 16.3%, including a dividend in 2021, while Dow Industrials has a return of 20.9%.
Intel recently announced its intention to launch Mobileye. Mobileye has a leading market share in driving assistance and autonomous driving solutions. In 2017, Intel acquired Mobileye for $15.3 billion. The initial public offering could put Mobileye at a value of more than $50 billion. With Mobileye’s potential initial public offering in mid-2022, shareholder value is about to be released.
It is worth noting that Mobileye expects revenue growth to exceed 40% in 2021. If this growth trajectory continues, valuations may increase significantly in the coming years. Splits have the potential to create value and INTC stocks may move higher.
Barron's magazine regularly writes about the Dow, including an article in November.
2022 Dogs now has an average yield of 3.9%, while the overall index yields 1.8%, which includes some better stories like IBM (stock code: IBM), Intel (INTC) and Verizon Communications (VZ), as well as unpopular drugmakers like Merck (MRK) and Amgen (AMGN). Both Merck and Amgen have a total return of only 1% in 2021.
According to Howard Silverblatt, senior index analyst at S&P Dow Jones, the following is the 2022 dividend yield for 10 dogs based on Friday’s closing price: IBM, Verizon and Dow Jones Index (DOW), 4.9%; Chevron (CVX), 4.6%; Walgreens Boots Alliance (WBA), 3.7%; Merck, 3.6%; Amgen, 3.5%, 3M (MMM), 3.3%; Coca-Cola (KO) 2.8%, Intel 2.7%. 10 All dividend yields on the Dow look safe.
In addition to the high yield, Dogs' valuation is often low. Merck, Walgreens, Verizon and Dow have a price-to-earnings ratio of about 10 times the expected earnings for 2022. IBM and Chevron have a 12-plus P/E ratio, with only one of the 10 stocks having a 20-plus P/E ratio of more than 20, the S&P 500 index.
After a decade of underperforming, including last year, value investing may end up being the best growth stock in 2022, as the Fed may raise short-term interest rates due to a sluggish economy. This may put pressure on the valuation of growth stocks.
If the value shines, Dogs can shine too, and investors will get a considerable rate of return of about 4%. This is comparable to the interest rates on many junk bonds, and double the yield on 30-year Treasury bonds.
gradually drives growth
For Intel, it is unlikely to achieve market share in one go. Intel CEO Patrick P. Gelsinger believes turning the situation around is a five-year effort. However, the market is discounting for the future, and with positive developments, INTC stocks may rise.
In September 2021, Intel announced that the company had begun building two leading chip factories in Arizona. Intel will invest $20 billion in these plants. Due to the global chip shortage, this may be the best time to increase investment.
Intel also promises to invest $95 billion in chip factory expansion in Europe. The shortage of automotive chips has been a big headwind for electric vehicle companies in 2021.The goal of European expansion is to address this supply and demand gap.
By 2022, Intel is expected to generate $25 billion to $28 billion in capital expenditure. Additionally, the company aims to make higher investments in the following years. This may translate into revenue and profit growth space.
It is worth noting that Intel is ready for a large investment. In the first nine months of 2021, the company reported operating cash flow of $24 billion. This means annualized cash flow potential exceeds $30 billion.
So even if an average investment of $25 billion to $30 billion per year over the next few years, Intel has the ability to provide free cash flow. INTC shares have already provided a healthy dividend yield of 2.8%. Intel appears to be an attractive dividend growth stock as investments may bring higher returns.
From a growth perspective, another point is innovation. Intel already has strong innovation channels, including the company's first ASIC-based IPU. Additionally, the next generation of standalone GPUs for gaming are scheduled to be launched in the first quarter of 2022.
Wall Street's view
turns to Wall Street, and Intel has reached a hold consensus rating based on four buys, 12 holds and seven sells allocated in the past three months. Intel's average target price of $53.80 means a 7.6% upside potential.
Advanced Micro Devices (AMD) may take away market share from Intel in the past few years. However, Intel appears to be fighting back through capital investment and innovation channels.
Turnaround won't come immediately, but the transformation may drive INTC stock higher.
