The main theme from Intel’s (INTC) latest quarterly results is that corporate sales have not been high enough to rejuvenate Intel’s revenue in the face of lower PC sales. It seems we are still in a transitional period, whereby more and more people are using mobile devices to hook to the internet and less from a desktop PC. I do not expect this cannibalization to last forever and on that note, Intel did say they see PC sales stabilizing. So at least this is some consolation for the future, until proven otherwise.
The bad news however is that forward guidance was nothing to brag about. Revenue guidance by the company for 2014 calls for sales to be flat. In a market where revenue growth seems to be king, the market does not take kindly to companies that have no revenue growth. As a result, Intel’s stock is getting a small beating today.
The real import issue for the market however — to the extent that revenue guidance does not change throughout the current year — is that it will be Intel’s third year in a row with lower or no revenue growth.
INTC Revenue (Annual) data by YCharts
I am not going to get into the nitty gritty of what makes Intel tick. There are many other authors here at S.A. who have a much better knowledge of Intel’s technology than me. I am once more going to talk to you about whether you should be invested in Intel or not.
My answer is, if you are interested in a dividend and want to own a relatively safe stock, then Intel is probably one of the best choices out there. If on the other hand you want a stock that has the chance to give you above average returns, then you probably need to make another choice.
I have been advocating swing trading Intel up and down on a weekly basis for over a year now. I think investors might want to continue with this tactic for the foreseeable future (meaning for all of 2014), unless of course something changes and Intel is ripe for revenue growth once more. Because other than that, I don’t think investors will make much holding it.
Analysts still do not see much upside to Intel either. While Citigroup and JPMorgan upgraded the company, Goldman Sachs has reiterated its sell rating with a $16 price target (ouch). Now I do not know who will win this tug of war, but the average consensus calls for a forward 12 month target price of $25.32, and in my book, that is not much incentive to hold any stock.
But Intel is not my only swing trade candidate in the large cap sector. I would also add IBM (IBM), Cisco (CSCO) and Oracle (ORCL) to the list (among others). And the reason is, revenue and earnings growth are either low or non-existent in all of the above companies.
And when I mean low, I mean not enough to make investors excited enough to want to discount the future and push the P/E of these stocks up.
So the price of these stocks (in most cases) will simply be a function of market psychology. And if I am right that 2014 will be a very difficult year, then we might even see these stocks lower for the year, even if they are not expensive at all.
I do not see Intel being able to provide investors with above average returns for the foreseeable future. Revenue growth is still non existence and in this market, that’s the name of the game. So if you must have or definitely want Intel, IBM, Cisco or Oracle in your portfolio, I recommend swing trading them on a weekly basis for a chance of higher returns.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More…)
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