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Technology Stocks : INTC
INTC 40.03-1.3%3:59 PM EST
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To: Frodo Baxter who wrote (164)4/11/1997 4:26:00 AM
From: Reginald Middleton   of 990
 
As I have said earlier, the valuation is not that conservative, INTC makes less than MSFT per dollar invested once the cost of capital is taken into account. That is why MSFT is given the higher premium. I have heard often that INTC is undervalued, but many fail to look at the actual mechanics of the valuation. INTC has a lower initial return on investment and a higer cost of capital due to the relative volatility raising it's beta above that of MSFT's (MSFT is actually less volatile than the braod market itself). INTC does invest heavily in captial expedintures, which causes a negative real, net cash flow. This is good if the investments can conisistently beat expenses plus the cost of capital, which it does by a decent margin. Since it does (and INTC's mgmt. have executed superbly in the past), INTC's market value has skyrocketed to match the significant increases in internal economic value.

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