PC, The problem with Intel is that 1. The current valuation looks reasonably high even based upon the current eps and a rosey scenario. 2. Their current Eps are based upon a monopoly position and huge growth of the pc sector combined with artificially low interest rates. None of these factors look cast in stone for the future.
So, I use a valuation system that estimates Intel's eps growth for the next 5 years, the risk-free interest rate over the next five years, an estimated beta, the growth rate of the S&P 500, etc. This type of valuation is perfect if you input the right variables. -g- Which is well-nigh impossible. But I do a best of all worlds, a worst of all worlds and a median input into my model to get various price results. The median model shows Intel priced at about $32 a share today based upon flat rates and a market beta, but single digit eps growth on both INTC and the S&P. If eps continue to grow negatively, and/or interest rates ever go up, this thing heads for the teens. If the short term rate falls to 4 pct. and Intc starts growing at 20 pct. again, then it is worth its price in the market right now.
So, to achieve today's price, you are left with a look at their technology and the needs of the pc market to determine whether they can apply CPR to their eps growth rate. And, you have to make an interest rate assumption that would be pretty optimistic from these levels with the huge asset inflation we have. I see this as the lowest probability result. The market sees it as a sure thing. Of course, most folks in the market don't know valuation from irrigation. -g- Different strokes for different folks.
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