Intel Phenomenon

Good times continue for semiconductor maker

Trees don’t grow to the sky. What goes up must come down. Wall Street loves to cart out adages like these to explain that stock prices can’t rise forever. So how do you explain a phenomenon like Intel Corp. (NASDAQ: INTC), which has risen 1,500% since 1990?

The answer is simple. Intel dominates a growth market–the company has a 90%-plus share of the market for semiconductors, the chips that act as the brains of a computer. That slice of a booming industry has translated into a tremendous run for the company’s shares as PC sales have rocketed. “I’d say Intel is one of the two or three remaining monopolies in the world today,” says Lester Hardley, a financial planner with Merrill Lynch, “and you have to love a company in that kind of position.” However you choose to label Intel’s success, one thing is certain, it remains one of our best stock picks over the last year. We recommended Intel shares at $53.38 and saw them rise to $ 150.50 as of January 24–a 177% gain. If you had put $1,000 into the company a year ago, your investment would now be worth $2,774.
Revenue gains of 41% to $20.8 billion and a 44% jump in company earnings to $5.81 a share didn’t hurt matters. And while Intel cautioned Wall Street that the first quarter of 1997 wouldn’t show much of a revenue increase compared to the close of 1996, analysts believe the entire year should bode well for the company. Zacks Investment Research reports that as of January 11,23 of 38 analysts covering the stock rate Intel a strong buy and expect earnings to rise to $8.28 a share for a 42% increase. This momentum should be fueled by consumers and businesses both moving to upgrade to computer hardware operating on the company’s Pentium chip. Further, Wall Street is betting that Intel maintains a 19% growth rate for five years.

STOCKPILE
ESI
William Thomason, director of portfolio management of Parnassus Investments (800-999-3505), sees Electro Scientific Industries (NASDAQ: ESIO) benefiting from favorable trends as semi-conductor chip maker beef up production. The company’s products include a laser for repairing computer memory chips and a vision system allowing robots to sense their surroundings. What’s more, he says, the company is debt free, an anomaly for technology companies today. Thomason sees the stock, trading at $26 as of this writing, rising to $34, or 15 times fiscal 1997 estimated earnings per share of $2.20.

IHS
Brace Brooks, a vice president with Pryor, McClendon, Counts & Co. (800888-4742), feels that Integrated Health Services (NYSE: IHS), a diversified health care provider, has lagged in the market due to uncertainties over health care legislation and flat earnings stemming from the company’s push into home health care. The result: IHS trades at 9.6 times expected 1997 earnings of $2.60 or $25 a share, as of this writing. Brooks says the country’s aging population and the continued migration of patients from hospital bodes well for the stock. He sees the shares climbing to $39 in

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