Computer processors giant Intel has been hanging out in Wall Street’s bargain bin for quite a while. Archrival Advanced Micro Devices is stealing market share in key markets, and Intel’s attempts to gain a foothold in mobile devices never gained traction. The last few leadership teams have not been up to the task of managing Intel’s formerly dominant market position — but it’s under new management now.
Current CEO Pat Gelsinger is an engineer at heart, with decades of processor design experience. He has a deep understanding of what it takes to produce successful chips in Intel’s target markets, his leadership style earns industry-leading reviews from Intel’s workers and the company’s culture is turning back to rewarding innovation.
Ironing out kinks in the design and production process that earlier teams left behind is taking some time due to the semiconductor industry’s lengthy development pipelines and costly chip-making machinery. Gelsinger is now two years into his turnaround efforts, and investors should start seeing tangible results within a year or two.
Meanwhile, on multiple valuation measures, Intel’s stock is trading below its 10-year and five-year averages. On top of that, the stock was recently offering a fat dividend yield of 5.2%. Long-term investors might want to take a closer look at Intel. (The Motley Fool owns shares of and has recommended Intel stock and options.)
Ask the Fool
From N.H., Maryville, Tenn.: What are “unrealized gains”?
The Fool responds: After you make an investment, it will often rise or fall in value, giving you a gain or loss. You “realize” the gain or loss when you sell it. Until then, it’s “unrealized.”
For example, if you bought 100 shares of Buzzy’s Broccoli Beer for $2,000 and they’re now worth $3,000, you have an unrealized gain of $1,000. You might be sitting on huge unrealized gains from some great stocks, but until you actually sell the shares, you haven’t reaped, or realized, those gains — and they might shrink (or grow) by the time you sell them.
Unrealized gains are gains in theory only. Another term for them is “paper profits.”
From T.D., Philadelphia: I’m thinking of selling a stock that pays no dividend and a stock that hasn’t grown much since I bought it last year. Would it be worth moving that money into CDs?
The Fool responds: Stocks are arguably the most profitable long-term investments for most people; certificates of deposit, with interest rates that have been very low for many years, have been best for shorter-term investments. But interest rates have risen recently, and some CDs are offering 4.5%. If you don’t think your stocks will do much better than that, do consider CDs.
But you might want to hold those stocks if the companies seem to be performing well, increasing their revenue and earnings over time. Dividends are terrific, but many great companies pay small or no dividends, especially if they’re reinvesting profits to further their growth. And lots of strong stocks will head south or be stagnant for a while — especially when the overall market experiences a downturn.
The Fool’s School
Great wealth can be amassed through investments in the stock market, but don’t jump in if you don’t know what you’re doing or you don’t have the time, skills and inclination to study lots of companies, deciding when and if to buy into or sell out of them.
Fortunately, there’s an easy — and effective — way to invest in stocks that requires very little time or knowledge: index funds. An index fund is a mutual fund (or an ETF, an exchange-traded fund) that tracks a particular index of securities. It holds roughly the same securities as the index does, and thereby aims to deliver roughly the same return as the index (minus fees).
So an S&P 500 index fund will track the S&P 500 by holding most or all of the stocks in the index. The S&P 500 includes 500 of America’s biggest companies, from Apple and Amazon.com to Campbell Soup and Hasbro. Invest in an S&P 500 index fund, and you’ll instantly be a part-owner of hundreds of strong companies, with your wealth growing as theirs does.
Many index funds have extremely low fees, too, so they can perform just about as well as their underlying indexes. The SPDR S&P 500 ETF, for example, charges just 0.095% annually — or about $9.50 per year for every $10,000 you invest in it.
Best of all, you won’t sacrifice much performance with index funds: The overall stock market has averaged annual returns close to 10% over many decades (though over a shorter investing period your return is likely to be higher or lower). Over the 20 years ending in the middle of 2022, fully 95% of all U.S. large-cap stock funds underperformed the S&P 500, and over the previous 10 years, 90% underperformed. The news isn’t better for smaller companies: Among U.S. small-cap stock funds, 94% underperformed their benchmark index (the S&P 600) over the past 20 years.
It’s hard to beat index funds — and you can probably invest in them via your 401(k) or an ordinary brokerage account.
My Dumbest Investment
From B.C., online: My worst investment? I would say poor timing. Like many who have written in, I have often sold too soon or held on for the wrong reasons. I have sold shares of Intuitive Surgical, Salesforce.com, Facebook (now Meta Platforms) and many others way before their time just because they stagnated for a while and I felt the urge to do something. Meanwhile, I inherited shares of another stock and I hung on too long out of affection for my grandfather. I guess my lessons are to hold forever if the reason you bought is still true, and not to hold a stock for sentimental reasons.
The Fool responds: Those are excellent lessons, learned from common mistakes. For best investing results, it’s important to learn to manage your emotions. Many people sell in a panic when the stock market drops, or buy shares of hot stocks impulsively without considering whether they’re overvalued, or sell just because a stock has stalled and they’re impatient for gains.
A quote often attributed to super investor Warren Buffett says: “The trick is, when there is nothing to do, do nothing.” That’s hard to do, but if the company in which you’re invested is chugging along and not facing intractable problems, it’s often best to hang on for many years. Patience is another critical investing virtue.
Who Am I?
I trace my roots back to a family-owned wig store in El Paso in 1968. My U.S. business is based there, but I now have a headquarters in Bermuda, too. With a recent market value near $2.6 billion, I’m now a major consumer products company, with many familiar brands under my roof, such as Braun, Drybar, Hot Tools, Hydro Flask, Osprey, Oxo, Pur and Vicks. I rake in more than $2 billion annually and employ more than 2,000 people worldwide. My namesake, the beautiful wife of Sparta’s King Menelaus, was blamed for starting the Trojan War.
Can’t remember last week’s trivia question? Find it here.
Last week’s trivia answer: Brinker International