To: ROY STRSSBERG & ALL
I think the question we should ourselves is Intel a Blue Chip? A company that has posted 20% or better gains for
the last several years, effectively has no debt, spends billions in R&D, is the unquestionable leader in its industry, has Return of
Assets of 30% and Return on Equity of 43% is unquestionably a growth stock. INTEL regularly beats analyst expectations -
recently by 7%. Current year (1997) earnings forcast show at a 22 p/e the stock value at $196! The new Pentium II chip will
be released any day (I have no idea about specifications) and the MMX technology chips are selling really hot. Earnings for the
next few years are forcasted at 19% growth!
The question though, it is a blue chip - one that performs well in a bear market like ko, ge, or g. That is a horse of a different
color. They are of similar sizes INTEL has annual revenue of $21 billion and a market cap of $117 billion, and a beta of 1.44;
Coca Cola is $18.55 bllion, 146 billion, and .69 respectively; GE is 79 billion, 175 billion, and 1.07 respectively; and Gillette is
9.7 billion, 44 billion, and .75 respectively.
(Quick referesher on beta values - S&P 500 has a value of 1.0 - for each .1 up or down that stock will be 10% more or less
volatile than the S&P 500 Index. In this case, INTEL is 44% more volatile and Coke is 31% less volatile)
As you can see, Intel and those we have compared it with are of similar size in market capitalization and revenue, but the beta
values are very different. Gillette and GE (and Merck) are non-cyclical and are very diversified - they produce products that
regardless of the economy people buy their products - you don't buy less deodarent or toothpaste (I hope anyway) just
because money is tight at the moment, you still replace the lightbulb in the house, and you still get sick and need to see a
doctor. Coke is a cyclical; by their own prospectus when summers are too cool, or when discretionary spending is tight their
sales are down, but because of its multinational approach is diversified and hence in the category of a blue chip. INTEL is
beginning to diversify some, recently moving into the networking arena, but with its high beta, will continue to be a very volatile
growth stock. Since it is tied tightly to PC demand, if the economy cooled off, demand for PC's may as well in the short term,
though long term will continue to be stong. Every time the book to bill ratio is less than desired or sales from major computer
sellers (remember x-mas when CompUSA and Circuit City said sales were down??) this stock gets hit in a big way. But there
are still billions that don't own computers, and the uses for computers is still in the infant stage if you ask me.
Definitely not a BLUE CHIP or A GREAT GROWTH STOCK. I'd buy more on dips. |
