Intel’s Share Price Says It All

By Tuesday, November 20, 2012

Intel’s Share Price Says It AllThe Dow Jones Industrials gave up most of their gains this year in the recent stock market selloff; given current fundamentals, this market is oversold. Strife in the Middle East definitely affected investor sentiment last week, but the market is now betting that U.S. policymakers will address the fiscal cliff issue before the end of the year. Across the board, expectations among equity investors have come downward; this gives stocks the potential to outperform in the fourth-quarter earnings season.

During the third-quarter earnings season, we saw large-cap, international businesses impacted by economic weakness in the eurozone and China. Chinese economic data has improved in recent weeks, although like everything nowadays, you have to consider the numbers with a grain of salt. In order for this stock market to advance, it requires improvement on the part of the Chinese economy; it goes without saying that the eurozone will be in no-growth mode well into 2013.

The latest earnings season saw large-cap companies report very conservative outlooks for the rest of this year. Corporations also showed difficulty in growing revenues, while earnings themselves held constant. (See “Where’s The Good News? Companies Just Meeting Expectations.”) Stock market valuations, however, are very reasonable at this time, and this provides a floor to the recent selloff. Still, without earnings growth, the stock market won’t really be able to advance in a meaningful trend.

One company that’s really been hit hard over the last six months on the stock market is Intel Corporation (NASDAQ/INTC). After reporting that its earnings were affected by weakness in Europe and, to a lesser extent, strength in the tablet market, Intel’s shares started selling off significantly. The stock has been so weak lately that its current price-to-earnings (P/E) ratio is below nine, while the stock’s dividend yield is now a hefty 4.5%. Intel has been very diligent at increasing its dividends to stockholders, but the stock itself hasn’t done a thing for the last 10 years. The company’s recent stock chart is featured below:

INTC Intel Corp Stock Market Chart

Chart courtesy of www.StockCharts.com

Given the fact that the U.S. economy is really only growing at the rate of inflation, the stock market isn’t going to advance in a meaningful way. In order for the stock market to experience a new bull market, we need a new business cycle to begin, and the U.S. economy may even have to endure another recession before this can happen. The Dow Jones Industrials are stuck at the same level they were five years ago.


About the Author | Browse Mitchell Clark's Articles

Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »

Sep. 1, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.71%
10-year U.S. Treasury Yield 2.14%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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