intel stock price
Sadly, some are still looking in the rearview mirror.
Take the case of Intel Corp. (Nasdaq:INTC). The world leader in PC chips has just announced it's borrowing another $6 billion.
Of course, borrowing money isn't necessarily a bad thing. It's the purpose of the debt that matters most.
Here's the thing. Intel is taking on more debt to help it buy back more of its flagging stock. See, the senior brass think that at $20 a share, Intel stock is a great value. And on paper, they're right.
After all, Intel has strong profit margins. Not only that, but its 15% return on assets is solid. It means that for every dollar the firm invests in assets, it earns 15 cents.
Try getting that rate on a bank CD. Or a T-bill, for that matter. Pretty much, it's impossible.
No, the problem for Intel and its shareholders is the stock has become a "value trap." In other words, investors buy the stock because they see they only have to pay nine times earnings and think it's a great bargain.
But, as I like to remind tech investors, a $20 stock that goes down is a lot more expensive than a $200 stock that goes up. Look at it this way, if you had simply bought an index fund tied directly to the S&P 500 you would have made a nice 12% return so far this year.
Holding Intel, however, would have cost you more than 19% as of last week. By buying its own stock, Intel isn't getting anywhere near the return it could by simply buying a basket of equities.
And it's actually much worse than it seems. This next number will blow your mind...
Otellini, who has worked for Intel for forty years and has been CEO for the past eight years, said in a statement that "...it's time to move on and transfer Intel's helm to a new generation of leadership."
Opinion has been divided over Otellini's tenure as Intel's CEO. While he has increased revenue and dividends, Intel's share price has risen by only about 1% annually.
Intel has clearly missed the boat on making mobile devices.
Gus Richard, who covers Intel for Piper Jaffray, wrote, "As the PC market has stagnated, Intel has tried to pivot to mobile and increasingly to foundry. However, Intel has had very limited success in mobile and Intel's prices for foundry wafers are 3x that of TSMC's [Taiwan Semiconductor (NYSE ADR: TSM)]."
Richard, who has a "Neutral" rating on Intel shares, continued, "The new CEO will also have numerous internal conflicts to resolve while moving the company forward. Although Otellini's departure is billed as a retirement, in many cases it is not a positive sign when a CEO leaves."