Although growth-oriented stocks have seen a dip in prices in recent weeks, there may still be a perception that cheap stocks still exist in the tech sector. Even when investors face cheap technology stocks like Intel Corporation (NASDAQ: INTC) or Verizon Communications (NYSE: VZ)They may see it as a poor investment – despite the low cost.
These perceptions may be outdated because the two companies have made changes to their businesses in recent years that can significantly boost revenue over time. This suggests that potential investors may want to consider taking a closer look at Intel and Verizon before the markets bid these stocks higher. Let’s get to know a little more about these two very cheap stores that are worth investing $500 in.
Intel’s P/E ratio of 10 is much lower than that of competitors like Advanced Micro Devices And nvidia, which sell 44 and 88 times earnings, respectively. Despite this lower multiplier, it seems that investors didn’t see many good reasons to buy Intel. With lost technical leadership and lackluster growth, investors have understandably outperformed the chip stock in favor of its faster-growing peers.
However, since Pat Gelsinger took over as CEO in early 2021, Intel has made meaningful changes to enhance its competitiveness. One example is the company’s $20 billion investment to add foundry capacity in Arizona.
One goal of this decision is to compete with Semiconductor manufacturing in Taiwan (TSMC), Samsung, and others in the chip manufacturing business by founding Intel Foundry Services. This is a welcome relief to investors who are nervous about the concentrated presence of the semiconductor industry in Taiwan, a country that has long faced geopolitical threats from China. Taiwanese companies claim about two-thirds of the world’s foundry capacity, according to TrendForce.
In addition, Intel has made efforts to regain its leadership in the industry. Currently, it has contracted with TSMC for some of its products. In the longer term, Intel has also implemented process improvements that Gelsinger says could bring the chip maker back to a manufacturing leadership position in 2025 and beyond.
Chip development cycles take three to five years. Hence, investors who are buying now can only speculate on whether Gelsinger will reach that goal. Furthermore, Intel’s forecast of $78 billion in revenue in 2021 according to generally accepted accounting principles (GAAP) may represent a slight decrease from last year’s levels. Moreover, the fact that the stock only rose 3% in 2021 may reflect red signals for Intel’s future.
However, Intel still generates more revenue than both AMD and Nvidia combined. If Intel can regain its technical leadership or capture a significant market share in the plumbing business, its stock could see a major multiple expansion.
2. Verizon Communications
Like Intel, Verizon appeared cheap for a reason for many years. Subscriber growth lags behind that T-Mobile United States, with T-Mobile also squeezing pricing and AT&TInvestors may see Verizon’s 10 P/E ratio as due rather than cheap. Unless investors own Verizon for a 5% return on an annual dividend of $2.56 per share, shareholders seem to have few reasons to care about the company.
However, Verizon has won the most JD Power Awards for network quality, taking the nod for 27 consecutive years. It also invested $53 billion in C-band spectrum last year, more than its peers combined, to maintain this advantage.
This may become increasingly important as its massive investment in 5G has not only accelerated its service but also spawned new business that few investors seem to appreciate. Verizon has begun actively promoting its Network as a Service (NaaS) offerings. NaaS is a data subscription service that allows customers to access network infrastructure on demand.
For example, in retail, NaaS can help retailers move network infrastructure between their physical and online operations as needed, just as a homeowner might adjust a thermostat. This is an opportunity that did not exist in the 4G environment and could bring in an additional source of income even if the pricing pressure for services remains intense. The benefit extends to other industries as well. Honda Motor He has taken advantage of this to help power autonomous vehicles, and Arizona State University has applied NaaS to immersive learning applications.
With 5G, Verizon may have already begun to experience improvements. Revenue in the first nine months of 2021 rose to just under $100 billion, up 6% from the first three quarters of 2020. Lower operating expense growth, lower interest costs, and higher income from financing-related operations help offset income tax high expense. Thus, its net income for the first nine months of 2021 was $18 billion, up 32% over the same period in 2020.
Admittedly, with its stock price down 12% in 2021, Verizon hasn’t attracted much interest. However, the above 10 P/E ratio is well below T-Mobile’s earnings multiple of 42. As NaaS becomes an increasingly essential service, Verizon may receive long-awaited recognition.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.