Intel Corporation (NASDAQ:INTC) shares are up more than 22.42% this year and recently increased 7.38% or $3.05 to settle at $44.40. Maxim Integrated Products, Inc. (NASDAQ:MXIM), on the other hand, is up 35.00% year to date as of 10/27/2017. It currently trades at $52.07 and has returned -0.04% during the past week.
Intel Corporation (NASDAQ:INTC) and Maxim Integrated Products, Inc. (NASDAQ:MXIM) are the two most active stocks in the Semiconductor – Broad Line industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect INTC to grow earnings at a 8.71% annual rate over the next 5 years. Comparatively, MXIM is expected to grow at a 13.65% annual rate. All else equal, MXIM’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 36.92% for Maxim Integrated Products, Inc. (MXIM). INTC’s ROI is 11.10% while MXIM has a ROI of 15.90%. The interpretation is that MXIM’s business generates a higher return on investment than INTC’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. INTC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.42. Comparatively, MXIM’s free cash flow per share was +0.36. On a percent-of-sales basis, INTC’s free cash flow was 3.31% while MXIM converted 4.41% of its revenues into cash flow. This means that, for a given level of sales, MXIM is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. INTC has a current ratio of 1.60 compared to 14.10 for MXIM. This means that MXIM can more easily cover its most immediate liabilities over the next twelve months. INTC’s debt-to-equity ratio is 0.45 versus a D/E of 0.00 for MXIM. INTC is therefore the more solvent of the two companies, and has lower financial risk.
INTC trades at a forward P/E of 13.81, a P/B of 2.93, and a P/S of 3.13, compared to a forward P/E of 19.49, a P/B of 6.68, and a P/S of 6.34 for MXIM. INTC is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. INTC is currently priced at a 8.82% to its one-year price target of 40.80. Comparatively, MXIM is -3.16% relative to its price target of 53.77. This suggests that MXIM is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.60 for INTC and 2.50 for MXIM, which implies that analysts are more bullish on the outlook for INTC.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. INTC has a beta of 1.06 and MXIM’s beta is 1.09. INTC’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.INTC has a short ratio of 5.77 compared to a short interest of 2.09 for MXIM. This implies that the market is currently less bearish on the outlook for MXIM.
Maxim Integrated Products, Inc. (NASDAQ:MXIM) beats Intel Corporation (NASDAQ:INTC) on a total of 8 of the 14 factors compared between the two stocks. MXIM is more profitable, generates a higher return on investment, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, INTC is the cheaper of the two stocks on an earnings, book value and sales basis, MXIM is more undervalued relative to its price target. Finally, MXIM has better sentiment signals based on short interest.