BERKO: Intel vs. Goldman
Friday, November 16, 2012 7:00 AM
Dear Mr. Berko:
I’m a married, 37-year-old, self-employed plumber with three children and have barely managed to keep my head above water these last few years. Because I’m a conservative investor, the broker for my small pension plan wants me to buy $5,000 of the Goldman Sachs Growth & Income Fund, which is up more than 12 percent this year. I asked him about 220 shares of Intel Corp., but he said the stock has performed very poorly over the past decade. He insists that this Goldman Sachs mutual fund is a much better investment than Intel, a stock he dislikes. Please tell me which you prefer.
R.E., Portland, Ore.
I wouldn’t go near that Goldman Sachs Growth & Income Fund (GSGRX-$21.59) recommendation with 10-foot dipstick. Year to date, GRGRX is up 13 percent; however, its five-year return is a negative 2.42 percent and its 10-year return is a positive, but stinky, 4.58 percent. The proverbial three blind pigs could do better than Goldman with their tails tied together and cotton balls stuffed in their ears. GSGRX and other Goldman proprietary funds also have lousy performance records. The performance of these funds exposes Goldman’s bland research, inadequate portfolio skills and terrible investment banking advice (think mortgage bonds, Facebook, et al.) with which it poorly counsels corporate America. If I was a Goldman employee, I’d be embarrassed to show my face in public. Please understand why your salesman is reluctant to recommend Intel. He makes a 5.25 percent commission ($262) if you buy a Goldman Sachs fund and only $125 if you purchase Intel. When there’s a choice between two issues, many brokers usually recommend the investment paying the highest commission.
Intel is to chips like potatoes are to french fries, and the industrialized world would suffer greatly for the loss of either. I’ve concluded that Intel (INTC-$19.96), trading about a buck under its previous 12-month low of $21, looks like a classy long-term investment. And I am confident that a 220-share purchase of “Intel inside” your IRA, in the coming decade, with all dividends reinvested, may provide you with uncommonly good long-term results.
Still, that salesman is as right as bacon and eggs, because Intel’s stock price has been a disaster the past 10 years. And, as most readers know, I haven’t liked the stock since before the turn of the century. But considering today’s price and its 4.5 percent dividend, your brokster may be wrong as Corrigan regarding Intel’s future. Intel’s revenue growth has been impressive and seems to be on automatic pilot. Since 2002, revenues have grown annually from $26 billion to $60 billion this year. Earnings, which for years were doing the “roller-coaster polka,” are dancing to a new beat as management has improved net profit margins by 75 percent. In the past five years, per-share earnings have shown a strong upward momentum, improving from $1.18 in 2007 to $2.29 this year and will possibly hit $2.70 in 2013. Meanwhile, the 2002 dividend of 8 cents has surged nicely to 90 cents in 2012. Conservative estimates for four years hence suggest that Intel’s revenues may exceed $71 billion and earnings could top $3.50 a share.
If past is prologue, then Intel should reward its shareholders with a $1.25 dividend in a few years, yielding 6.3 percent on today’s purchase price. Every time there’s a new hard drive, integrated digital technology platform, microprocessor, Blu-ray drive, solid-state drive, Bluetooth technology, GPS receiver, wired network connectivity product, wireless connectivity, mobile phone platform, power management circuit, storage device, memory card, portable memory device, etc., Intel always manages to get inside. Intel owns more than 80 percent of the world’s microprocessor market. Of course, management subsidizes its clients’ marketing efforts, which cleverly helps Intel benefit from brand-name recognition. Meanwhile, Intel’s enormous capital expenditure budget enables it to maintain the finest cutting-edge technology. Sooner than we want to believe, neurologists may be implanting Intel chips between the synapses in voters’ brains, opening a huge market for growth.