There is no doubt in the world that anyone that has thought of investing or knows anything about investing has heard of the name Warren Buffett. The man has been so successful over the many years of his investment career that he has effectively become an oracle of sorts. He finds companies that he believes are fundamentally strong and undervalued and then buys large shares of those companies.
In the case of Intel [NASDAQ:INTC], Warren Buffett’s investment company Berkshire Hathaway [NYSE:BRK.A] bought themselves 7.7 million shares of Intel. They have held these shares up until now and liquidated all of their holdings in Intel. Usually, when it comes to investing, most investors generally don’t dump all of their shares in a company unless they are absolutely sure that they do not think that the share price of the stock will continue to climb. It is true that the company gave no reason for dumping over $200 Million worth of Intel stock, but they also don’t have to if they have made a profit on it.
We do believe, though, that Intel is one of the most undervalued stocks on the entire stock market. Everyone says it, including us, yet nobody is willing to pump up the stock. Intel’s cash reserves and their constant profitability combined with their strong gross margins really should put the stock between $100 and $200 per share, regardless, it has remained in the $20-$30 for the past eight years. Unfortunately for Intel, this also doesn’t change the fact that they are now seeing pressure from companies like NVIDIA and Qualcomm from both the consumer and enterprise business segments that once held so strongly. Many analysts and investors also cite Intel’s fabs as one of their biggest liabilities, however, we believe that their fabs are one of their biggest assets as well.
If you look at Intel’s stock right now, it is actually performing quite well. The stock is near it’s 52-week high and is in the upper range of where the company’s stock has peaked since 2007. Intel’s stock hasn’t been higher than it has been this year since 2004 and in many cases since 2004, the stock dipped once it reached the current price range that it is in now. Looking at these simple analyses, you can see that it seems pretty rational for Berkshire Hathaway to have dumped their shares in Intel.
However, when Warren Buffett invests in a company that generally means he sees a profitable future. Berkshire Hathaway completely divesting from Intel is a somewhat concerning move, no matter how you cut it. There is no doubt that Intel is one of the most profitable companies in the world, but there is a chance that Warren Buffett believes that it could be very short lived. After all, his company is up 13% since the beginning of the year and 39% since the economy went into a tailspin.
These are no doubt going to be trying times for Intel as their mobile strategy is murky at best and the majority of the company’s future in consumer products lies heavily in their Ultrabook campaign. At this point, we will not know the results of Intel’s marketing blitz with Ultrabooks, but the 4Q of 2012 will really determine the future of the company as a whole as they battle with the likes of Qualcomm, NVIDIA, Samsung, Texas Instruments, AMD and many others.