The word “catalyst” gets thrown around a lot in financial writing, but it’s an important word because recognizing what can be a boon for a company is the difference between average returns and market-crushing gains.
You can imagine my excitement then when I recently saw that a storied Silicon Valley leader I have recommended several times has not one, not two, not three, but four big catalysts.
The global chip giant I have in mind recently beat on earnings and raised guidance.
It also hiked the dividend and hired a new CEO.
And if that’s not enough, the company announced an ambitious turnaround plan and is investing $20 billion in its growth.
The effort comes a little more than 50 years after the firm introduced the first microprocessor that is the linchpin for today’s digital revolution.
In fact, this is one of the few companies that still both designs and manufacturers its own chips.
Let me show you why this stock is beating the broad market by 286% and why there are even more gains on the way for investors who get in now…
It might almost be easier to list what this Silicon Valley legend hasn’t done for computing than what it has done.
From being an early developer of the advanced memory chips that the whole world runs on to reaching number 45 on the Fortune 500 list of the largest U.S. companies by revenue, this firm has done it all.
Today, it’s still hard to overstate the importance of this chip firm to society. It introduced the world’s first commercial microprocessor in 1971, which really kicked things off for the electronics world.
Back then, chips were simple. They had roughly 2,300 transistors each.
Today’s complex designs often have more than 30 billion transistors.
This company led the way in fitting more and more transistors in smaller, more power-efficient, and cooler chips for decades. But it has lately fallen behind in the race in smaller chip architecture.
All that is set to change as this company looks to turn things back around and hand investors lucrative payouts.
I’m talking about none other than Intel Corp. (INTC), which is probably the single most influential company behind the personal computer revolution.
Intel appointed a new CEO, and he’s already making big waves.
His name is Pat Gelsinger, and he was most recently the CEO at VMware Inc. (VMW) for eight years. There, he led VMware to success, having the Silicon Valley cloud computing company specializing in how to split cloud servers into several more “virtual servers.”
With a Master’s Degree from Stanford University and a life-long career in Silicon Valley, you might think Gelsinger comes from a highly tech-oriented family.
In fact, he was born on a farm in a region of Pennsylvania with a large Amish population. His first job was actually at Intel, where he started working after finishing his Associate’s Degree.
He studied for his Bachelor’s while at Intel, and stayed there for three decades, eventually becoming Intel’s first-ever Chief Technology Officer. He also reached the rank of senior vice president and general manager of Intel’s Digital Enterprise Group.
For his plan to turn around the company, Gelsinger wants to focus on the firm’s core expertise and improving margins.
In part, that means outsourcing some chip production to other companies, something that Intel has historically avoided. But in recent years, this has meant that it was stuck making its chips on older, larger technology.
Meanwhile, competitors had access to newer, smaller generations of chips.
It’s not all about outsourcing to cut costs, however. Only some chip production will be outsourced under Gelsinger’s plan so that his company can catch up technologically.
The other side of his plan is a massive $20 billion investment in two new chip factories at Intel’s existing plants in Arizona. This will allow Intel to fill the supply shortage in chips that are causing slowdowns in the production of cars, computers, consoles, and TVs all over the world.
Gelsinger has also said that the company is planning other expansions in the U.S., Europe, and elsewhere. This is another benefit of the plan.
Whereas most other chip manufacturing companies operate either in China or in Asian countries close to China, Intel is expanding its factories in Europe and the U.S.
That shields it from worries about our over-reliance on semiconductors from Asia and the power that gives China over our supply chain.
With the new cold war against China in full force, this puts Intel in a great position to retake its place as the leading chip designer and maker in the world.
The firm’s recent quarterly earnings were no slouch, either. For the December quarter, Intel beat expectations easily, reporting adjusted per-share earnings of $1.52 and sales of $20 billion.
Wall Street analysts were expecting adjusted per-share earnings of just $1.10 and sales of $17.49 billion.
In fact, despite the huge issues caused by the chip supply shortage, the coronavirus pandemic, and the worldwide problems with shipping, Intel’s quarterly earnings and sales were almost exactly as high as the ones the year before.
To reward investors for sticking with it, Intel also hiked its dividend. The stock now yields about 2.2% a year.
Wall Street is taking notice. Intel is one of the few tech titans that’s currently in an uptrend.
So far this year, the stock is up more than 33%, beating the market by 286%.
Add it all up and you can see that a revamped Intel should continue to hand savvy tech investors strong price appreciation and a dividend to boot.
Cheers and good investing,
Michael A. Robinson