Sometimes the stock market goes overboard punishing a stock. That appears to be the case for chip giant Intel (NASDAQ: INTC) and home-improvement retailer Home Depot (NYSE: HD). Both stocks are down at least 15% from their 52-week highs, and both stocks look like solid buys for long-term investors.
Intel
Intel’s core PC and server central processing unit (CPU) businesses are under assault. In both markets, not only has rival AMD been gaining ground, but chips based on technology from Arm Holdings are starting to proliferate.
In the PC market, Microsoft and Qualcomm are working together to make Arm-based laptops a viable option. The plan centers around Qualcomm’s ultra-fast chips, Microsoft’s reworking of Windows, and a software translation layer that enables legacy Windows applications to run on Arm-based PCs.
In the server market, cloud-computing giants are increasingly designing their own Arm-based CPUs to save money and boost efficiency. Meanwhile, NVIDIA has integrated Arm-based CPU cores into its Superchips aimed at AI workloads, and start-up Ampere is churning out power-sipping server CPUs.
Given these challenges coupled with the brutal post-pandemic downturn in the PC market that’s only now coming to an end, it shouldn’t be surprising that Intel stock is down 40% from its 52-week high. The good news is the company has an ace up its sleeve that will eventually allow it to benefit from all this competition.
Intel is going all-in on semiconductor manufacturing and building its own foundry business. The company is set to complete its ambitious plan to catch up with the foundry industry technologically early next year with the Intel 18A process, and from there it will build capacity and bring the next-generation Intel 14A and Intel 10A processes online over the next few years.
Intel already has $15 billion worth of foundry business booked, including a deal with Microsoft to manufacture a custom chip. The company is also working with Arm to co-optimize the Intel 18A process and the Arm architecture, setting the stage for Arm-based design wins in 2025 and beyond.
Intel’s turnaround story is a messy, multiyear affair, but the company is on track to be a major player in the foundry business by the end of the decade. For long-term investors, buying Intel at the current beaten-down price and holding on tight makes a lot of sense.
Home Depot
The pandemic-era home-improvement boom is officially over for Home Depot. The company reported a 2.8% decline in comparable sales in the first quarter and a 5% drop in earnings per share. Customers are putting large discretionary projects on hold, hurting demand for some types of products.
Home Depot sees the pain continuing throughout the year, with the company’s outlook calling for a 1% comparable-sales decline and minimal earnings growth. A recent story from CNN highlights one of the company’s problems: High inflation is driving customers to shop around, and they’re increasingly gravitating toward smaller stores like Ace Hardware.
While Home Depot faces a tough economic backdrop, demand for bigger projects will eventually rebound. The company is leaning into its popularity among professional customers with the acquisition of SRS Distribution, a residential specialty trade-distribution company. This is a big acquisition, with Home Depot shelling out $18.25 billion, but the company estimates that it will expand its total addressable market by about $50 billion.
Home Depot stock has tumbled about 15% from its 52-week high as investors fret about declining sales. While 2024 will be nothing to write home about, and the company’s sales growth in 2025 and beyond is unlikely to match the heyday of the pandemic, Home Depot stock looks like a solid long-term investment based on the company’s strength among pro customers.
Home Depot stock isn’t overly expensive, trading for about 21 times forward earnings. Earnings growth will be slow this year but should pick back up as sales growth improves. For investors with multiyear time horizons, Home Depot is a retail stock worth owning.
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Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Home Depot, Microsoft, Nvidia, and Qualcomm. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
2 Stocks Down 15% to Buy and Hold Forever was originally published by The Motley Fool
