News

The stock market is a popularity contest in the short run. Right now, Intel (NASDAQ: INTC) and Paycom (NYSE: PAYC) are losing that contest badly. However, for long-term investors, the beat-down these two stocks have received represents a buying opportunity. Here's why these two unloved stocks belong in your portfolio.

Intel

Intel stock has taken a beating over the past few years. Market share losses to Advanced Micro Devices (NASDAQ: AMD), a PC downturn, and a slow march toward becoming a leading foundry have failed to convince investors that a turnaround is coming. Pessimism is running high. While foundry leader TSMC is closing in on a $1 trillion valuation, Intel's market capitalization has plunged to less than $150 billion.

Investors are making a mistake ignoring Intel and its long-term potential. Demand for leading-edge semiconductor manufacturing is only going to rise in the age of AI. The Intel 18A process, which the company expects to be the best in the industry when it's ready early next year, will propel Intel into a new phase of its foundry journey. The company has $15 billion of foundry business booked so far, and it expects to be churning out that much external foundry revenue annually by 2030.

Beyond the foundry business, Intel has multiple major product launches coming this year. Granite Rapids, the company's new mainline server CPU built on the new Intel 3 process, is set to launch soon; Lunar Lake, Intel's power-sipping laptop CPUs, are coming in time for the holiday season; and Arrow Lake, desktop CPUs expected to use the advanced Intel 20A process, will be available sometime this year.

With a stacked product lineup and a foundry business that's on the cusp of taking off, now is the time to buy Intel stock before the market comes to its senses.

Paycom

Companies that truly put their customers first have an advantage over those that care more about boosting short-term profits. The catch is that putting your customers first has a cost that investors are generally not happy about paying.

Paycom sells payroll and human capital management subscription software to small and medium-sized businesses. The company's platform is already a popular choice for being easy to use, but Paycom has taken the ease of use to the next level with the Beti service. Beti lets employees do their own payroll, freeing HR departments from tedious, time-consuming tasks.

For Paycom's customers, Beti is a huge win. By reducing back-office busy work, Beti delivers an exceptional return on investment. However, the near-term effect is a growth slowdown for Paycom. Beti has been cannibalizing certain types of revenue, leading to deteriorating growth for the software provider. Revenue was up just 11% year over year in the first quarter.

There are two great reasons to buy Paycom stock despite this short-term challenge. First, by delivering an immense return on investment to its clients, Paycom all but guarantees that those customers will stick around for the long haul. Retention is the name of the game in the subscription software industry.

Second, Paycom is wildly profitable. Adjusted net income was $147 million on $500 million in revenue during the first quarter, and GAAP net income was soundly positive as well. Based on the average analyst estimate for adjusted earnings, Paycom stock sports a price-to-earnings ratio of just over 18. That valuation looks attractive given Paycom's incredible profitability. Strong growth trends also add to Paycom's shareholder value.

With Paycom stock down nearly 75% from its pandemic-era peak, investors are getting a best-in-class software company at a bargain price. That's a no-brainer buy in my book.

Should you invest $1,000 in Intel right now?

Before you buy stock in Intel, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Intel wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $780,654!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of July 8, 2024

Timothy Green has positions in Intel and Paycom Software. The Motley Fool has positions in and recommends Advanced Micro Devices, Paycom Software, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.