Why This Fund Manager Is Right to Bet Big on Intel Corporation

It's not difficult to find Intel naysayers, even after the company announced a blowout 2014 Q3 that included a nice jump in revenues year-over-year, higher margins, and improved operating income. What gives? Intel was late to the mobile party, and is paying for its tardiness with significant unit losses.

Not everyone's hung up on Intel's lack of mobile revenues, however, as evidenced by its 41% jump in share price year-to-date. You can count Ajo Partners among Intel's fans. With about $25 billion under management, Intel is Ajo's second-largest individual holding and it added significantly to its ownership last quarter. Founded in 1984, Ajo uses "an active, value-oriented approach and a highly disciplined, quantitative process to build diversified, fully invested portfolios of U.S. and emerging markets equities for large, tax-exempt institutions."

Obviously, Ajo sees good things on the horizon for Intel. And I think that's a correct assessment.

What's all the fuss about?Brian Krzanich took the helm of Intel in May of 2013 following the retirement of longtime chief Paul Otellini. Though well-respected, it was time for Otellini to pass the torch as Intel transitioned to a new tech world. Though Intel's longtime dominant position in PCs remains, the shift to mobile technologies left the door open for competitors like Qualcomm to step in and fill the mobile void.

With nearly two-thirds of the cellular chip market, Qualcomm is the undisputed leader, leaving Intel fighting for the scraps. With just 8% of phone chip sales, Intel's mobile division is a money-losing proposition some pundits believe will never turn the corner. Even Intel chairman Andy Bryant acknowledged its mobile shortcomings, saying last month: "This is the price we pay for sitting on the sidelines for a number of years."

Intel isn't giving up on mobile, but there are other opportunities for growth that those buying shares, like Ajo, recognize will continue to drive revenues and earnings. One of Intel's primary areas of growth has been, and will continue to be, its data center solutions. If Q3 is any indication, and I think it is, Intel is positioning itself to dominate the fast-growing data center market. Last quarter, data center revenues jumped 16% compared to 2013's Q3, and it is easily Intel's second-largest division behind the PC group.

And Intel's impressive data center growth will continue. As Krzanich put it, "For us, the data center is Intel's next big business. It's already a big business and we're saying it'll continue to grow at 15 percent a year to at least 2018." Why? The cloud. Which is why Qualcomm announced it will begin aggressively targeting data center solution sales.

A couple more considerationsAlong with cloud-related revenues, Intel expects sales growth from the Internet of Things (IoT) and wearable technologies. At $530 million in revenues last quarter, IoT isn't in Intel's PC or data center sales ballpark, but the unit grew 14% compared to 2013, and that should continue going forward.

As for wearables, it's a market that goes beyond smart watches. From fitness trackers, clothes, and headphones, Intel is making strides by developing chips that help solve some of the wearable market's biggest challenges like seamlessly interacting with other IoT-related devices and providing data analytic solutions. With an estimated 50 billion connected devices by 2020, IoT and wearables revenues could prove to be a boon for Intel.

Mobile or no mobile, there are a host of fundamental reasons making it smart for Ajo to up its stake in Intel by over 2 million shares last quarter, bringing its total to over 13.7 million. For investors in search of share price appreciation in 2015 and beyond, Intel should make your short list. As for Intel's nearly2.5% dividend yield, that's just icing on the cake.

The article Why This Fund Manager Is Right to Bet Big on Intel Corporation originally appeared on Fool.com.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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