Bill Cara: Intel is almost back to 2Q03 prices, Fri., Feb. 17, 2006, 12:09 PM

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February 17, 2006

Intel is almost back to 2Q03 prices, Fri., Feb. 17, 2006, 12:09 PM

You know of course that Intel (NDQ: INTC) is the 800-pound gorilla of semi-conductor stocks, and this industry group is probably the most important one in the U.S. equity market. So why is INTC now trading down about "2.2 pct on the day, and "18.5 pct year-to-date?

This morning RBC downgraded Intel, but what's changed in the industry outlook? The stock is already selling at just 72 pct of the year's high, and is down "20.0 pct over six months.

Moreover today's price is almost back to 2Q03 levels. And the Dow and Nasdaq have come a long way since then.

Following the January corporate earnings report, many analysts turned bearish on the stock.

So, with today's downgrade a month after the others, does RBC really expect things to get worse at Intel?

We are talking about a $130 billion market cap company that pays out a neat dividend that yields today +1.8 pct, and is trading at a PE well below 15, both on a trailing 12 months or forward 12 months basis.

I have to believe that these Wall Street analysts are less concerned about Intel than about the prospects for a global economy that Intel has to operate in. And that should worry everybody.

On the other hand, I ignore the analyst's opinions for the most part and stick to the fundamental and quantitative data, and the RSI technical indicator. When I see that RSI bottoming below 30 on the Monthly, Weekly, and Daily (see the charts), then I start to watch the Hourly data do a sharp pull-back before writing puts (see the charts) :-)

That way I paint the bottom with infrequent purchases of quality stocks at long-term historically attractive prices, or I take in options premium, which serves to lower my cost base.

You should know that I include Intel in the Cara Global Best 100 Companies list, and so I consider it solid enough for a core position in most portfolios. I never chase it when it is running high, and I wait until other traders are unhappy enough to discard it at prices low enough to interest me.

Over the years, this may not make for exciting blogging, particularly to day traders, but the strategy works.

Posted by Posted by Bill Cara on February 17, 2006 12:09:12 PM | Category: 45 Info Technology

Discourse

Seasonality- Chart of the Day showing a chart of the average mid term election year DJIA since 1950. Up to this point we are trading in a similar fashion to the past. If we continue to follow the pattern we could rally into mid April; then it would be time to sell before May and go away until October 1st.

Posted by: stockman at February 17, 2006 12:26 PM [link]

Bill-I totally agree, any sell off to the 20 area in INTC is a good place to add to postions. Unless there is a dose of panic injected into the marketplace, option premiums in INTC will remain subdued. Buying longer dated options may be a better play. Have to believe there is less risk in this company than in some of the other semis let alone in the other riskier sectors. Many stocks seem to have put in long term tops. How long can the generals lead the without the help of the troops? Let's hope Cramer hypes GOOG so we can short it at 400.

Posted by: patrick at February 17, 2006 12:48 PM [link]

One issue with the analysis on Intel. It is a bellwether, but there are also competitive issues, and I think many see AMD as eating Intel's lunch. If so, that would mean at least a part of Intel's weak performance is based on that competition rather than overall semiconductor weakness. Compare AMD to INTC over a year and you will see that some capital is swinging from INTC to AMD though staying in the Semiconductor sector.

Posted by: Quintsquarry at February 17, 2006 12:50 PM [link]

i'm done for the day....heavy into heavy metal! later have a good weekend all.

Posted by: Bullring at February 17, 2006 2:05 PM [link]

A good week Bullring- as they say 'there's gold in those hills' or was it SILver? or TIEtanium? Adios

Posted by: stockman at February 17, 2006 2:32 PM [link]

bill,
i do not agree that this is the time to buy intel. i believe the overall markets are putting in a top after a very strong run. intel's price has been one of the weakest, with a very strong market and economy. i see a much lower price down the road, when the market corrects and the economy starts shrinking.

Posted by: ragingtrader at February 17, 2006 3:17 PM [link]

Intel is a great buy and an entry must be close. It is the only company to produce a 65 nm processor and thus the new Mac -- www.macnewsworld.com/story/36256.html.

It has a 45 nm in R&D that can be out by next year â€“ see Intel's press releases. AMD is better than Intel this round, but there are many to come. AMD has the better 64 bit dual-core and currently better heat dispersion, but that can change in 6 months.

Small usually means faster, but Intel is also making advances in bus speed + they are working on a quad-core -- www.xbitlabs.com/news/cpu/display/20050505142821.html.

Posted by: paul at February 17, 2006 4:33 PM [link]

ragingtrader-INTC will be a port in the storm, a relative safe haven when traders target higher PE stocks for selling. I agree the market will be down considerably in 2006, but extended stocks (MRVL next?) will be hit. Did you watch the action in NVDA today after a stellar earnings report? (gapped up 5 points and then finished up .31) Most money will be made from shorting stocks in this environment. Bear markets spare nobody, but companies with little debt, positive cash flow, and paying a dividend will outperform high PE (or negative PE) stocks.

Posted by: patrick at February 17, 2006 4:37 PM [link]

patrick - i agree that intc's fundamentals are good. it's just that the tape has been so disappointing. you can probably say the same for alot of the former tech generals of the gogo 90s. i am certainly not smart enough to figure out why intel has underperformed. could be amd and other competitors. it isn't their earnings or the balance sheet. intc could very well be at a bottom and rebound strongly from here. my bias, of a correction, prevents me from getting long right now. regarding a safe port, i will keep my bet on cash vs a tech stock.

Posted by: ragingtrader at February 18, 2006 2:02 PM [link]