Revisiting an article I wrote on Intel (INTC) back in August, the stock was trading at 26.31 and my message was on a company moving in a neutral channel as it moved into the mobile computer market. I suggested a bearish short-term income play and this is what I wrote:
The Options Play
Intel is presently trading at 26.33 and I expect it to bounce off the Bollinger Bands so I am looking at a bearish options strategy. I am going to buy the first option "in the money" to accelerate the play.
- Buy the November put with a strike of '27' (priced at $1.62)
- Sell the November put with a strike of '26' (priced at $1.09)
- Net Debit to Start: $0.51
- Maximum Profit: $0.49
- Maximum Risk: net debit
- Maximum Length of Play: 3 months
Reasoning behind the Play
- Slowdown in the PC market and shrinking Asian-Pacific economy.
- At the top of the Bollinger Bands, I would expect the stock to pull back.
- I see no catalyst to push the stock up at the present.
If you carried this play out to the present date and closed out the trade, here are the results you would have ended up with:
- Sell the November put with a strike of '27' for: $7.00
- Buy back the November put with a strike of '26' for: $6.30
- Gross profit: $0.70
- Net Profit: (gross profit $0.70 - net debit $0.51) = $0.19
This is not a bad return over three months. It is a good example of waiting out the option to the very end of time decay, but I am not sure it gave us an advantage at this point. I would close out the trade much earlier to free up the cash and make it available for other trades. Now what is happening to Intel since it has dropped so much? Can we expect it to turn around?
With the recent announcement of the retirement of Intel CEO Paul Otellini earlier than expected, I do not have a good short-term bullish outlook on the stock. Intel said it may look for an outsider for the first time as the company continues to make the difficult transition into the mobile computing arena. The transition to a new CEO is expected to last 6 months and as the company considers an outsider for the first time in 45 years, this makes me think the transition process has been hard for the company and it may need new blood from outside with a fresh view on the mobile market. This is purely speculation on my part. But I guess some analysts are thinking like me. Noel Randewich had an article published on Reuters and wrote this:
"Some Wall Street analysts said it might make sense for Intel to consider hiring an outsider to shake up its strategy as the computing world goes through its most significant shift since the advent of the Internet."
This does not mean an outsider has the upper hand or will even be chosen. I believe the complexity of the transition has brought this idea up. Nevertheless, a transition of this caliber is bound to have a neutral effect upon the stock at best. It takes time to get new visions in place and do the research to begin with. I am not bearish, but this does not make me bullish on the stock in the short term.
With the company in transition, I can only imagine that this new CEO's success will be gauged on one criterion and that will be to steer the company into a successful mobile computing company. Mr. Otellini did his job as Intel commands 80% of the processors in notebooks and desktops even though its closest rival, Advanced Micro Devices (AMD), has been a formidable rival in the industry.
The whole transition process may not be a challenge in technology for Intel as much as it is sales. Samsung (OTC:SSNLF) and Apple (AAPL) make up a huge part of the market and Samsung makes chips for Apple. If we look at the rest of the market, the battle is with Qualcomm (QCOM), Nvidia (NVDA), and Chinese manufacturers. China is a very hard market because of the low production costs of the Chinese manufacturers. Presently Intel is in about 1% of the mobile market. Evercore analyst Patrick Wang had this to say about Intel's technological abilities to adapt in the mobile field:
"After two failed attempts at developing a mobile processor, Medfield [Intel's latest mobile processor] shows they can create a competitive mobile product."
Should You Invest in Intel Right Now?
With the transitional process taking place in both management and into the mobile market, I am not sure I see Intel doing much but going sideways for an extended period of time. Personally, I believe if the economy turns around and more buying takes place so its sales climbs, I think it will go up with a trending market, but at this point I would not consider it a trend leader. Would I recommend Intel as a long-term investment at this point in time? No, I wouldn't, not if you are interested in growth. I don't believe we will see much growth in the company for at least the next 3 to 6 months. It may be a good company to revisit in mid 2013, but I believe there may be better growth stocks out there right now.
Intel has been in a bearish trend for the last 13 weeks dropping from a high of 26.5 to the present position around 20.25. That's a huge 30% decrease in value in one quarter. Looking for signs of a slowdown may not be there. The RSI indicator has remained in bearish territory below the '50' marker even when it has reached peaks. As the stock has moved down, it has hugged the bottom Bollinger band and just recently pushed through to the top band for the first time. But even this was not met with much strength to get above the '50' market in the RSI, nor could it lift the MAs in the MACD very far. They continue to float along the bottom. The only possible sign of a turnaround is the push up from the Bollinger bands, but this is very weak. The stock continues to look bearish for the short term.