Do you run with the crowd or zig when other traders zag? Even the staunchest value hunters need to sharpen their contrarian instincts from time to time, as groupthink can lead us astray. So, what beaten-down beauties should audacious traders consider as 2022 embarks on its perilous final quarter?
If you’re going to bet on a near-term market bottom, you might as well cherry-pick the demolished gems, as they could retrace fast and far. While microprocessor makers aren’t the only market segment worth looking at now, there’s no denying that modern civilization can’t function without those little chips – and in the Fed-induced frenzy to jettison so-called “growth stocks,” some of the biggest semiconductor manufacturers have fallen deeply out of favor.
With that, a couple of assets previously pigeonholed as growth stocks now belong in the value category. They also offer a nice added bonus in the form of dividend payments, so income-focused investors ought to get in early and often if they’re so inclined.
Semiconductor Stock #1: Intel (NASDAQ: INTC)
You won’t have to search very hard to find someone on a financial message board or chat room declaring that Intel has lost its crown as the former king of U.S. chipmakers. Okay, we get it: Intel has lost market share to its competitors.
It’s one thing to punish a stock when a company loses its front-runner status; it’s another thing entirely to pummel the stock into the ground. Just a few months ago, it would have been unimaginable for Intel to have a market cap that’s barely above $100 billion and a share price below $30 – and yet, here we are.
Why is the market so anxious about Intel’s future prospects? Along with the usual litany of complaints (elevated inflation, supply-chain constraints, aggressive central bank policy, etc.), apparently, the experts on Wall Street are worried that slowing PC sales will dent Intel’s bottom line.
There’s no point trying to dispute this, as global shipments for PCs slumped 15% year-over-year in the June quarter, and this undoubtedly contributed to Intel’s dreadful second-quarter earnings miss. With that miss came a downward revision to Intel’s full-year revenue range forecast, as well as share-price destruction.
This leaves us with a top-tier microprocessor manufacturer with a trailing 12-month P/E ratio of 5.6x that pays a forward annual dividend yield of 5.6%. So much negative news has been baked into Intel’s pie that there’s likely nowhere to go but up – and along the way, you’re welcome to collect and reinvest those dividend distributions for enhanced long-term returns.
Is Intel Stock a Buy, According to Analysts?
Turning to Wall Street, INTC comes in as a Hold based on four Buys, 15 Holds, and 10 Sell ratings assigned in the past three months. The average Intel price target of $35.17 implies 30.4% upside potential.
Semiconductor Stock #2: Micron (NASDAQ: MU)
I’m not frothing at the mouth about Micron to the same extent as I am with Intel, as the numbers aren’t quite as attractive. For one thing, Micron sports a forward annual dividend yield of ~0.85%. That’s nothing to write home about, but it’s better than nothing, which is what some buyback-obsessed tech titans pay (or don’t pay, I should say).
Meanwhile, Micron’s trailing 12-month P/E ratio of 7.1x isn’t as monocle-popping as Intel’s but is still quite enticing and ought to perk up the ears of any self-proclaimed value investor. Here’s the injustice that really needs to be rectified, though: Micron’s drastically reduced share price misrepresents the company’s recently reported fiscal data, which really wasn’t bad at all.
Most likely, investors jettisoned chip-related stocks, including MU, after seeing INTC stock’s carnage. That’s a sure sign of a bottoming process: traders running for the exits before they even read the data.
As soon as they come back to their senses, investors should come to appreciate Micron just as they’ve done for decades. They’ll recall that in Fiscal 2022, Micron “generated record revenue of $30.8 billion” while also reporting the company’s “sixth consecutive year of positive free cash flow,” as President and CEO Sanjay Mehrotra pointed out.
Besides, Micron is still among the most future-facing tech giants. In a direct salvo to its competition, Micron announced plans to invest up to $100 billion over the next 20+ years to build a “megafab” in New York. Just imagine a 2.4 million-square-foot fabrication factory in the Big Apple – just in time for the CHIPS Act to kick in, not coincidentally, I’m sure.
Is Micron a Buy, According to Analysts?
Turning to Wall Street, MU comes in as a Moderate Buy based on 21 Buys, four Holds, and two Sell ratings assigned in the past three months. The average Micron price target of $65.04 implies 21.1% upside potential.
Conclusion: What They Hate, I Think is Great
The pessimism surrounding chip-related stocks has devolved into outright nihilism, even while modern life can’t exist without semiconductors. This magnitude of cognitive dissonance – needing and hating these tech companies at the same time – presents an opportunity for a Buffett-style dip-buy.
Thus, we must get our shopping lists ready. If the market’s near a bottom, then Intel and Micron stocks are probably at the bottom of that bottom. So, consider leaning into the hate and buy what others are selling as soon enough, the downgrades will likely flip to upgrades, and Wall Street will cheer these two tech-market pioneers.
