Streetwise

Lauren Rudd

Sunday, April 24, 2011

Many Merely Pay Lip Service to the Week's Events

For Christians this past week was Holy Week, the commemoration of the last week of the earthly life of Jesus Christ before his crucifixion on Good Friday and his resurrection on Easter Sunday. For the Jews it was the week of Passover, a commemoration of the Hebrews' escape from enslavement in Egypt.

And yet many merely pay lip service to the meaning of those events, as evidenced by the vitriolic rhetoric of the kind seen in an email promulgated recently by a Republican Party official in Orange County, CA.

Inflammatory commentary aside, much of the general public is perplexed and confused as to the underlying cause of what they view to be an economic quandary with no clear path to a better future, while at the same time being assaulted by the views of a vocal minority that attracts the media like moths to an open flame.

Nonetheless, with little but anger for sustenance it is easy to fall prey to false idols whose proposed solution is to grab a gun and light the torches, an atmosphere that bears a strikingly resemblance to the frenzied mass hysteria that gave birth to witch burning, mob lynching and Kristallnacht. And yet a funny thing happed on the way to the latest witch hunt.

When asked if they were utilizing such socialistic, debt producing, programs as Medicare, social security and unemployment insurance, many individuals answered yes, despite their vocally rabid stance against any government intrusion into their lives.

In actuality, the season of discontent is the result of a continual and unfathomable disregard for the monetary and economic costs of engaging in incessant military actions combined with tremendous tax cuts. Fiscal reform on both sides of the ledger, meaning higher tax revenues combined with lower expenses, is not just necessary, it is vital to our survival.

While we would like to blame Big Government and Wall Street for all our ills, up to and including “original sin,” remember, “We have met the enemy and he is us.” Yes, the insatiable feeding frenzy by Wall Street at the expense of Main Street must end. However, reform does not mean we mimic the French proletariat and bring back the guillotine.

So where does this turbid economic outlook leave you and your portfolio? That answer is easy; there is still plenty of low hanging investment fruit just asking to be picked. To that end, this week I welcome back an old friend; a company that I have not talked about for several years but now appears to be back in a real growth mode.

As the computer industry’s leading chip manufacturer, Intel knocked the cover off the ball as it kicked a number of Wall Street analysts in the derrière by reporting a stunning first quarter revenue number of $12.8 billion, a 25 percent increase over the same period a year ago.

Net income was $3.2 billion, up 29 percent over the year-ago period. Excluding one-time items, Intel earned $0.59 per share, a result that was well above the consensus forecast of $0.46. So what is the effect of Japan’s crisis on Intel? Although Intel has no factories in Japan, approximately 10 percent of the company's revenue does come from manufacturers in Japan.

With its shares trading with a forward P/E of 10 times expected annual earnings and an indicated dividend yield of 3.7 percent, Intel is certainly a potential investment bargain, despite a well-publicized flaw (now fixed) that was discovered in a chipset that is used alongside the company’s new cutting-edge Sandy Bridge processor. Intel expects to ramp up Sandy Bridge over the next several months along with recently launched versions aimed at servers.

Gross margins did disappoint a bit, coming in at 61 percent after hitting a record 67.5 percent in the fourth quarter, while the 62 percent forecast for this quarter appeared just a bit weaker than anticipated. However, that number should increase after the aforementioned problem with Sandy Bridge evaporate.