As tech stocks go, Intel (NASDAQ:INTC) provides investors with potential upside while also providing a reasonable amount of downside protection should the global economy slow. Most InvestorPlace contributors, including myself, consider Intel stock a smart play at this point in the economic cycle.
After Last Week’s Pop, Intel Stock Still Has a Little Room for Growth Left
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If you’re looking for a stock with a sound balance sheet and healthy free cash flow generation, there aren’t many that can compete with INTC stock.
Intel Stock Is a Safer Play
At $53, the Intel stock price has room to move higher. In mid-August, InvestorPlace’s Luke Lango suggested three catalysts existed that would move Intel stock to $60 within a few quarters. Since Luke made this call, INTC is up 12% and definitely on the move.
A few days before Lango’s Intel buy recommendation, IP’s James Brumley was positive about the company despite the fact it was well behind Advanced Micro Devices (NASDAQ:AMD) when it comes to launching a 7-nanometer processor.
In early June, I argued that Intel’s free cash flow yield of 6.7% suggested that it was getting closer to value territory. Up almost 20% in the three-and-a-half months since, its free cash flow yield has dropped to 5.4%, a good, if not great FCF yield.
All things considered, Intel stock remains a safer play than some of its more volatile competitors.
A Hidden Reason to Buy INTC Stock
Free cash flow and a sound balance sheet are smart reasons to own Intel. However, there’s another reason why some investors might consider buying its stock: Cloudera (NYSE:CLDR), the leading enterprise data cloud provider.
The California-based company has had a crazy year on the markets. Down 17% year to date through Sept. 12, it has gained back 82% of those losses in the past 90 days, a chunk of it coming in the past week as a result of better-than-expected Q2 earnings.
In June, after reporting disappointing Q1 2019 results, CEO Tom Reilly announced his resignation effective July 31. The company has struggled with its $5.2 billion merger with HortonWorks, a combination that gives it more than $700 million in sales and 2,500 customers.
What’s this got to do with Intel?
Intel owns 26.1 million shares of Cloudera, making it one of the company’s largest shareholders with 9.3% of its stock. Intel originally invested $742 million in Cloudera in May 2014. With the HortonWorks merger, Intel’s ownership stake was diluted down to less than 10%.
In the three months ended July 31, Cloudera lost $87 million on $196.7 million in revenue. On a non-GAAP basis, it lost $7.4 million from operations in the quarter, $90 million less than a year earlier on a 16% increase in annualized recurring revenue.
In 2020, it expects to lose between 24 cents and 28 cents a share on a non-GAAP basis with as much as $775 million in revenue.
While Cloudera has great potential, the fact that it’s struggling to make money has made it a difficult stock for analysts to get behind, with just six making it a buy out of 20 covering it.
Carl Icahn Likes Intel Stock and Cloudera
However, the company’s troubles have caught the attention of Carl Icahn, who owns more than 18% of its stock. Although Cloudera is losing business to Amazon (NASDAQ:AMZN), Icahn believes that Cloudera stock is undervalued.
Currently, Intel’s ownership stake is worth much less than Cloudera’s $15 IPO price.
If you like Cloudera but are nervous about making a bet on it while it’s still searching for a permanent CEO, buying Intel stock is a smart way to protect your potential downside.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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