How I evaluate a stock - Example Intel

Someone recently asked me how I evalutate at stock. Here's my basic process. First of all I want to make money on a stock. I don't buy stock just for the fun of it. I buy with an expectation of a return. And my return horizon is less than 5 years.

1. Am I familiar wiht the company? Have I read articles about the company over time (Example)? Is the company a major player in its industry sector?
   
2. How do I expect to make money? Generally I expect to make money on both dividend returns and stock growth. I almost exclusively invest in dividend stocks.With Intel I expect to hold this for a long term and enjoy the dividend returns. 
3. Do I expect growth? If not, I pass.
4. What is the P/E ratio? Defined . Caveat: The P/E ratio looks at the last 4 quarters of profit. It is not forward looking. Generally I look for a P/E ration of less than 20. 
   
5. What is the Dividend yield? In the case of INTC, it pays an annual dividend of $ .90 and the price of the stock is about $ 30. So the yield is .9 / 30 or 3%. 
6. What is the Payout Ratio? INTC earned $ 1.87 per share over the last 4 quarters. That's a gross yield of 6%. The Payout Ratio is EPS / Dividend = 48%. If all of the earnings are paid out in dividends, it means that nothing is kept back for R&D. Not a good thing. A company with an unprofitable quarter may have a Payout Ratio of greater than 100%. They may be able to sustain that for a few quarters but not over the long term. 
7. What is the Enterprise Multiple? This topic is a bit complex so click through to my longer blog post. I look for an Enterprise Multiple of less than 11.
   
8. How does the stock compare to the company's competitors? finance.yahoo.com is my go-to website for all of this information. 

Conclusion: Intel is a buy for me. We currently have holdings in INTC. We are not adding to that at this time.

Intel Is the Biggest Bargain Out There?

Intel Is the Biggest Bargain Out There: Fort Pitt’s Forrest
Excerpt:

"At this point in time, I couldn't be happier owning this stock because I really think 2013 is going to be the year in which they begin to show some traction," Forrest says in the attached video. "I think people have really underestimated what this company can produce." Forrest believes Intel can overcome its power efficiency problem sooner than its rivals at ARM (ARMH) can overcome its computing power disadvantage. "My bet is that the engineers at Intel will win this" she says. To gauge how that fight is going, Forrest recommends that investors keep an eye out for any signs of Intel pushing into the lower end smartphone business. Of course, there are plenty of skeptics out there who aren't impressed with the company's 4.3% dividend yield that is high, and rising. In fact, just 35% of the 51 analysts who follow Intel rate it a "buy" right now, which means the stock is the least loved it has been in at least 20 years, FactSet data shows.

Comment: We have in IRAs. It's gone down! Good dividend stock and I don't see selling it (since the capital gains / loss rules do not apply to IRAs). But I'm not buying more.

Warren Buffett buys high-tech

Berkshire buys 5 pct of IBM

Excerpt:

Warren Buffett said Monday that his company has spent $10.7 billion to buy more than 5 percent of IBM's stock this year, a surprising move by the billionaire investor who has long shied away from investing in high technology companies.

Berkshire Hathaway also revealed several other new investments made during the turmoil of the third quarter. Besides the new IBM investment, Berkshire added much smaller stakes in Intel Corp., DirecTV, General Dynamics Corp. and CVS Caremark Corp.

Most of the details emerged from the quarterly update Berkshire filed with regulators on its $59 billion U.S. stock portfolio. Buffett disclosed some details in interviews earlier in the day.

Monday's filing doesn't offer a full picture of Berkshire's holdings, however, because the Securities and Exchange Commission allowed the Omaha-based company to keep some of its investments confidential.

Buffett has long refused to invest in high-tech companies because he has said it's too difficult to predict which technology businesses will prosper in the long run.

But he said he recently realized his view of IBM was wrong based on what he read in the company's annual reports and what he learned by talking to information-technology departments at Berkshire subsidiaries. He said he should have realized years sooner that hardware is no longer the heart of IBM's business.

"Now they're very much a services company, and they're very intertwined with their customers," Buffett said. And he said IBM's customers are reluctant to change once they start working with IBM.

So Berkshire has bought about 64 million shares since March, or about 5.5 percent of IBM. Buffett says he believes IBM has a sound plan for the future.

Comment: We bought into IBM earlier this year and it has been our most positive stock of the year. Just starting to buy INTC

Intel ... toe in water

It wasn't a major purchase .. but I bought my first shares (only 5) of INTC yesterday. The Wiki article on Intel is pretty interesting as is the corporate site (Check out "See what 40 years of innovation looks like"). My first computer had an Intel 8080-compatible Z80

My son asked me why I bought Intel. Answer: They are big.  They are public (listed). They are profitable. They pay a dividend. Chart from yahoo finance.