Advanced Micro Devices, Inc. (AMD) has been one of the worst performing tech stocks in 2012. After a big post-earnings drop, the stock now trades for a mere fraction of the 52-week high, which is around $8 per share. Advanced Micro Devices is a leading chip maker and that industry is facing significant challenges. Not only does it have stiff competition from the likes of Intel (INTC), but it is also being impacted by a weak market for PC's. Tablets and other mobile devices have put a major dent in the demand for laptops and PC's in general and that has put pressure on revenues and profits for most major chip makers.
While financial results and guidance have been disappointing recently, longer-term investors might want to consider AMD as a potential turnaround play. Stocks have ups and downs, and investors often overreact in both directions, sending the shares too high on excessive optimism, and sending stocks way below fair value when headlines and investors sentiment gets to extremely bearish levels. Shorts also often help to push a stock way below reasonable values. When investing in beaten-down stocks that could be potential turnarounds, it is important to realize the risks can be significant, especially when a company is losing money. That is why it makes sense to buy in stages and limit your total exposure. If the PC market does not improve in the future, there might not be a turnaround for AMD, but some expect PC sales to see an increase from the recent introduction of Windows 8, and the holiday season also could give this industry a bit of a boost.
On the positive side, AMD has a solid balance sheet with about $1.3 billion in cash and around $2.3 billion in debt. The company is innovating and launching new products including the Trinity processor which offers speed, improved battery life and graphics. AMD is also going to focus on the tablet market by launching the Tamesh processor in 2013. This could help offset the weakness in PC sales.
On November 6, Lisa T. Su (an officer) purchased 48,000 shares at $2.05 each for a transaction value of $98,399. It is worth watching this stock for additional insider buys in the coming weeks as it could be a sign that the stock is bottoming out and undervalued. When insiders buy stocks trading at or near 52-week lows, it can be a sign that Wall Street analysts and the market might be caught up in "doom and gloom" and could be missing out on a potential bargain.
While plenty of risks remain for the PC market, this stock looks oversold at just over $2 per share. AMD has been a leading chip maker of many years and there is a good chance it will finds ways to adapt to slower PC sales and introduce products that will allow it to
participate in the growth of tablets and other mobile devices.
Here are some key points for AMD:
Current share price: $2
The 52 week range is $1.96 to $8.35
Earnings estimates for 2012: a loss of 18 cents per share
Earnings estimates for 2013: a loss of 25 cents per share
Annual dividend: None
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.