Today I bought shares of Intel (INTC), the world's largest semiconductor chip maker. This is my third purchase of INTC this year, with previous purchases occurring in September and October.
The stock has declined recently due to concerns about earnings, PC sales, mobile market penetration, and the CEO stepping down. I think Mr. Market has overreacted to these issues, focusing too much on the short term and ignoring the company's long-term potential. Samir Patel recently wrote an excellent article on Intel at Seeking Alpha that provides a comprehensive look at the company and its prospects.
I continue to think that INTC is undervalued, with a P/E of 8.5 (its 5-year average P/E is 17.1), P/S of 1.8, and PEG of 0.8. I have seen a wide range of fair value estimates, but even the lowest values (such as $22.50 from S&P) give a margin of safety of at least 10%. The current dividend yield of 4.6% is well above historic levels and provides a nice reward for patient investors as they await a better appraisal of the stock by the market.
I bought 75 shares of INTC at the price of $19.56 per share, giving me a total of 190 shares at an average price of $21.17 per share and a 4.23% yield on cost. My previous cost basis was $22.22 per share, so this purchase reduced it by 4.7%, which is a nice example of averaging down. At the current dividend rate, I can expect to receive quarterly dividends from INTC of $42.75, which is $16.87 more than before this purchase. INTC will now contribute a total of $171.00 to my annual dividend income, which is $67.48 more than before. This purchase makes INTC the fourth-largest position in my portfolio, with a weight by market value of 5.8%.
This also happens to be my last purchase for 2012. It used up a good portion of my November savings and I have insufficient cash for another purchase. Now I can sit back and watch how the market reacts to the ongoing "fiscal cliff" issue as the year draws to a close. Actually, I probably will not be following the market too closely over the next few weeks due to my heavy travel schedule. I returned a few days ago from a work-related trip and tomorrow I leave for yet another one. I wanted to squeeze this post in before I go, though my monthly review for November will have to wait until the end of this week. As mentioned before, updates to my blog (and comments on other blogs) will likely be sporadic for a while.