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Investor Insights:
- Intel’s trading at its highest level since the 2000 dot-com boom.
- Analysts’ profit forecasts tell us that investors are paying too much for Intel’s stock.
- On the other hand, there’s another chipmaker that has a much different story to tell.
Chipmakers offer exposure to many of the biggest tech trends, including automation, drones and artificial intelligence.
And with the phase 1 U.S.-China trade deal easing tariffs on the global semiconductor market, now is a great time to add one of these companies to your portfolio.
The big question is: Which one do you buy?
One major chipmaker, Intel Corp. (Nasdaq: INTC), has grabbed the attention of many investors recently. At roughly $60 per share, it’s trading at its highest level since the 2000 dot-com boom.
Intel’s next earnings release is on Thursday this week. Analysts expect the company to post earnings of $4.61 a share for 2019.
A price-to-earnings (P/E) ratio is a great way to quickly gauge investors’ expectations of growth and the price they’ll pay for a stock.
If we take Intel’s current stock price and divide it by its 2019 earnings estimate, we get a P/E ratio of roughly 13.
A P/E of 13 means investors are happy to buy Intel’s shares on the expectation that the chipmaker’s profits will grow at roughly 13% over the next few years.
By looking at analysts’ profit forecasts for the company though, we can see that’s not the case.
Wall Street expects the chipmaker to generate less than 1% growth in profits for 2020 and stagnate at that level again in 2021. [1]
That means investors are paying too much to own Intel’s stock.
I think it’s likely Intel’s shares will stay stuck at this level or decline back to the mid-$40s, a decline of 25% to 30%.
On the other hand, there’s another chipmaker that has a much different story to tell.
1 Chipmaker to Rule Them All
Nvidia Corp. (Nasdaq: NVDA), in my view, offers us much more growth and value than Intel does.
And based on NVDA’s recent gains, many investors seem to agree with me.
Investors Are Favoring Nvidia Over Intel in Recent Months
(Source: TradingView.com)
For one, the shares still trade about 13% below the chipmaker’s all-time high price of $280 a share, set roughly 16 months ago.
And earnings growth is about to accelerate, rather than stagnate like with Intel.
Wall Street analysts expect the chipmaker to earn $5.55 a share in 2020. In 2021, they see profits rising 30% higher, to $7.22 a share.
If we divide the 2021 figure using Nvidia’s share price of $248, we get a P/E ratio of 34. In other words, investors are saying they expect the chipmaker’s profits to grow at 34% a year.
So with Nvidia, the current price of the stock is entirely appropriate.
In fact, given the pace of earnings growth, I could argue that investors should be paying at least a small premium — a P/E ratio of 45 — to own the stock.
By that metric, we could easily see another 30% rise in Nvidia’s shares over the next 18 months or so.
Best of Good Buys,
Editor, Total Wealth Insider
P.S. Readers of my Total Wealth Insider service already have the chance to grab money on the meteoric rise of another chipmaker. I see its stock growing by as much as 1,000% over the next decade thanks to what I’m calling the “Hypernet.” For the full details, click here.
Source:
[1] Forbes – Intel Revenue Growth To Slow?
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