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Intel Stock: Pricey, But a Great Long-Term Buy on a Dip

Intel (NASDAQ:INTC) reported quarterly earnings in mid-April that fell just short of profit targets. It did hit revenue targets, but those sales were down 2% year-over-year, so that’s nothing to crow over.

Yet investors have bid the stock up about 12% in the past month for a handy year-to-date return of about 17%. That’s better than the broader S&P 500.

Intel stock seems to have the bad news priced in and low expectations seem to be the order of the day. That tells me this 3.7% dividend payer is pretty stable and a decent long-term investment for income portfolios.

I admit that the outlook doesn’t look very growthy for Intel stock, and that’s why this kind of trade isn’t a good idea for those with short attention spans. In fact, I recommended Intel as my Best Stock for 2013 based on the fact that it has stability and good buy-and-hold potential, not because of any near-term upside. The outperformance in the first few months has been nice, but investors should be in it for the long haul.

Obviously, the gaping hole in Intel has been a lack of mobile chips that are in demand. ARM Holdings (NASDAQ:ARMH) has some of the best designs for mobile gadgets, and its chips made by Qualcomm (NASDAQ:QCOM) populate a host of tablets like the Apple (NASDAQ:AAPL) iPad and smartphones powered by Google‘s (NASDAQ:GOOG) Android OS … and that means Intel has had trouble supplementing its lost revenue from a waning PC business.

But current COO Brian Krzanich is looking to change that as he takes over the chief executive reins from Paul Otellini in two weeks or so. In a release, he said his plan is to move “even faster into ultra-mobility, to lead Intel into the next era.”

That shift is overdue, and a new-but-familiar corporate leader will help that transition.

You might scoff at the strategy, but keep in mind that Intel’s first really earnest effort at mobile chips took place last year. The Atom chip is now in seven devices sold in 20 countries, according to INTC.

It’s still behind, but it’s learning and making inroads. That could help provide incremental growth going forward, even if the PC business continues to drag on other chip sales.

Furthermore, as it tries to figure out its long-term plan, you have a reliable dividend and a stable revenue stream from the existing fab business that cranks out a host of microchips every year. Sure, the margins aren’t grand … but Intel has adjusted.

Intel is the top chipmaker in the world, bigger than No. 2 Samsung (PINK:SSNLF) and No. 3 Texas Instruments (NASDAQ:TXN) combined. That scale counts for something, and any modest uptick in the overall market is sure to matter at a dominant player like Intel.

Throw in more than $17 billion in cash and investments and operating cash flow of $18.9 billion in fiscal 2012 and you have a well-run company that is not in any serious trouble. Intel stock has a sustainable dividend payout ration of about 40% of earnings, so expect a nice income stream for the long term in this play as well.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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