Intel
Intel (INTC) started 2021 on a positive note. The news that the chip manufacturer is strengthening its position in the market has given strength to the buyers of this paper. Investor sentiment also improved after Pat Gelsinger became the new CEO in February 2021. Nevertheless, the issuer was unable to maintain positive dynamics, and by the end of the year its shares had lost all recent successes.
At first glance, Intel may interest investors with its low cost. The company's shares are trading at a profit of only 10 times the forward one, and bring a forward dividend yield of 2.7%. But is the game worth the candle?
The main reason why this paper is expected to decline in the coming quarters is Intel's lack of competitive advantages, which caused weak revenue growth in 2021 and a decrease in margins over the past three years.
Moreover, analysts do not expect significant changes in the company's fate in the coming quarters. According to forecasts, the revenue of the chip manufacturer will remain at the same level, but the profit will decrease to $3.70 per share from $5.28.
The long-term forecast is also not encouraging. And in the next 5 years, Intel's cumulative annual growth rate will be only 3%.
Nevertheless, it is not worth rushing to get rid of these shares. And here's why. Firstly, Intel has a good dividend, which is 2.8%, and the payout ratio is less than 27%.
The second reason to purchase the issuer's shares is their low valuation. The price-to-earnings ratio of the shares is only 9.5, and the price-to-future earnings ratio is 13.5.
The third reason is that the company does not think to give up. Management is ready to increase capital expenditures in the coming years to become more competitive. The company is ready to spend from $25 to $28 billion on improvements. Of course, such investments will reduce both profit and cash flow, but if they justify themselves, then Intel may have a second wind for growth.
Yes, the company is inferior at the moment to its main competitor AMD, the issuer is heavily dependent on government subsidies, and in the near future it may have to suspend the payment of dividends. Nevertheless, we would not put an end to it, and we would keep some of these shares in the portfolio.
Our last review of this paper was in November 2021. We recommended to refrain from bidding on this company. As the further dynamics of the asset showed, the purchase would be in the negative. Almost immediately after the forecast, the price went down and stopped only around $48-$49. Now there is a positive trend. We expect 6% growth from current levels. There are no prerequisites for a medium-term upward movement yet.
Verizon Communications
The wireless market looks immeasurable, however, and it has its own boundaries and high competition. For example, the American market is divided between several companies, and Verizon Communications (VZ) is one of them. This mobile operator controls approximately 30% of the American market.
Given the specifics of the industry, Verizon's growth largely depends on population growth and the lure of customers from other providers. This feature reduces the attractiveness of the paper for investors.
However, this does not mean that it is not worth buying. See for yourself, RootMetrics recently awarded Verizon the 16th annual Network Experience Award. In 2021, the issuer also received the largest number of awards from JD Power for network quality, and Verizon has received awards in this area for the 27th year in a row.
In 2021, the telecom operator made a number of investments worth more than $53 billion to maintain its leading position in the transition to 5G. And here Verizon spent more than AT&T and T-Mobile combined.
In addition, AT&T's plans to reduce its dividend payments make Verizon a leader among dividend companies in this industry. Moreover, in 2021, the mobile operator increased payments, bringing them to $2.56 per share. By the way, Verizon raises payments for the 15th year in a row.
According to the latest financial report, a decrease in interest expenses, income from non-core sources and a slowdown in the growth of operating expenses led to an increase in profits. For 9 months of 2021, the issuer's revenue amounted to slightly less than $ 100 billion, an increase of 6% compared to the same period in 2020. During the same period, net profit increased by 31% to almost $18 billion.
In November, we also recommended to refrain from buying this paper. As we expected, the price growth did not last long and after testing the level of $53.90, it went down again. Market stabilization occurred only around $ 50, from which the asset bounced and quickly went up. At the time of writing the review, the paper was around $52-$53. We expect the stock to continue to grow and move towards the $58-$59 zone.