If You Want to Own Tech Stocks in 2019, Read This
In the stock market, growth often comes at a price. And since tech stocks are known for having some of the best growth prospects, prepare to pay a bit more for them.
In other words, if you want to own shares of companies that are capitalizing on “the next big thing,” value would be very hard to find.
But it’s not impossible. Intel Corporation (NASDAQ:INTC), for instance, is a fast-growing tech company without a sky-high valuation.
Let me explain.
To most people, the name Intel is associated with the chips inside their personal computers. Indeed, by inventing the x86 series microprocessors, Intel has become a dominant chip maker for the PC industry.
According to Statista, Intel is by far the world’s largest supplier of x86 computer processors, with a market share of 79.4% by the third quarter of 2018. (Source: “Distribution of AMD and Intel x86 computer processors worldwide, from 2012 to 2018, by quarter,” Statista, last accessed December 21, 2018.)
Now, I know what you are thinking: “Isn’t the PC industry slowing down?”
Well, while growth in the PC industry isn’t as strong as before, today’s Intel is doing a lot more than just making chips for your computers.
In particular, it’s profiting from some of the fastest-growing segments in tech.
A Growing Business
Take cloud computing, for instance. The industry has been expanding at a rapid pace, and cloud service providers, led by Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corporation (NASDAQ:MSFT), have gotten a lot of investor attention.
What’s less talked about, though, is Intel’s involvement in this booming industry. While the company is not a cloud provider, it is a leading supplier of server chips that power the servers in data centers.
In its most recent quarter, Intel’s “Data Center Group” generated $6.1 billion of revenue, representing a 26% increase year-over-year. (Source: “Intel Reports Third-Quarter 2018 Financial Results,” Intel Corporation, October 25, 2018.)
The company is also capitalizing on the Internet of Things (IoT) boom. In the third quarter, Intel’s “IoT Group” revenue grew eight percent to $919.0 million.
Another often-overlooked business of Intel is its non-volatile memory solutions group, known as “NSG.” This segment makes solid-state drives and serves a wide customer base that includes enterprise and cloud-based data centers, users of desktops and laptops, and IoT application providers.
In the quarter, NSG brought in $1.1 billion of revenue for Intel, representing a 21% increase from a year earlier.
Thanks to these booming businesses, Intel generated record quarterly revenue of $19.2 billion for the whole company, up 19% year-over-year.
Of course, there are tech companies with even faster growth rates than Intel. What makes INTC stock stand out is that it offers strong growth potential at a reasonable price.
Not an Expensive Stock
While high-quality items seldom go on sale, the latest downturn in the U.S. stock market has resulted in a pullback in Intel stock. Over the past six months, INTC shares slipped more than 10%.
As a result, the company has a price-to-earnings (P/E) ratio of just over 14 times, not a high number by any means.
Of course, there are plenty of popular tech stocks that took even bigger hits during the market crash. But note that, even after their recent tumbles, many of the hottest tech stocks are still carrying high-double-digit P/E multiples.
The blunt reality is, despite the recent downturn, valuations are still bloated in the U.S. stock market. With a lower multiple, Intel stock is a relatively inexpensive way to get on board the technology profit train.
Intel Corporation: A Tech Stock Worth Considering, Even in a Market Sell-Off
Looking ahead, one can’t help but wonder how long this sell-off will last, and whether further losses are on the way for tech stocks.
While no one can really answer that question with certainty, I believe that Intel is one of the few tech stocks worth considering, even when every tech ticker is deep in the doldrums.
The reason lies in the company’s dividend policy.
You see, in order to fund their growth projects, tech companies often have to reinvest their profits (if they have any). As a result, most tech stocks don’t have many resources left to maintain a regular dividend policy.
Intel stock, on the other hand, has been a solid dividend-payer for years. The company currently yields 2.6% and has more than doubled its per-share cash payout over the past decade. (Source: “Dividends & Buybacks,” Intel Corporation, last accessed December 21, 2018.)
My point is, the market can go up or down in the years ahead, but Intel stock investors will be collecting cash payments from the company no matter where INTC stock is headed.
Combining that with the company’s growing business, it’s easy to see that Intel remains a top tech stock for 2019 and beyond.