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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Amy J who wrote (165679)	6/6/2002 1:29:27 PM
From: GVTucker	Read Replies (1) \| Respond to of 186894

Amy, RE: Did you read Intel's annual report? The opening is really good, especially for those of us without the big picture view on revolutions as it relates to the stock market. I liked the picture of the stock prices for US Steel (page 5). GV, your thoughts on this? I hate to be a broken record on this, but the big difference in the market now vs earlier poor markets continues to be valuation. That's where the comparisons with the earlier eras in the steel and railroad industries die. I see that Intel used US Steel as a comparison and noted that while the stock tanked almost 90% in 29-32, production eventually recovered, as did the stock price. Note that when US Steel's stock price hit its bottom, it was trading at about a third of book value. Intel is now down about 70% or so from its peak. And yet the valuation remains high. For comparative purposes with the above paragraph, note that Intel is about 5x book value. Before we all get into a debate about how worthwhile book value is, though, I'd just as soon ignore that comparison. More useful to me is to look at Intel's peak earnings in 2001. Intel made $1.51 per share that year; the pro forma number was $1.64. Remember, though, that about one third of those earnings were from Intel Capital activities. Those kind of profits were not from operations, and they won't recur any time soon, if ever. Taking those one time gains out, Intel right now is trading at about 24x peak earnings, using the pro forma earnings number. While certainly not at bubble levels, it also isn't priced at what I would call a bargain. I realize that I might not be able to buy Intel at the old tech bear market levels of 0.5x book or 8x earnings any more--the market now realizes that mistake--but I just think that the market has already priced some of the recovery in the tech business into Intel's stock price. Note that this doesn't necessarily mean that Intel is doomed to tank from here. I don't expect that at all. It does mean, though, that the market has learned its lesson from previous tech downturns. Then, we always heard about how the semiconductor business was dead. And those prognostications were always wrong. Now, we don't hear about that too much. We hear about how long it will take to get out of the temporary downturn, instead. It'd be nice to hear those doomsday words again. Such talk is typical of moments of opportunity. But I'm not holding my breath.