Intel: Both Technically and Fundamentally Compelling

All in all, Intel INTC has had a very busy year. The company has launched more than 13 new chips since the start of the year and has been investing heavily to speed up the design of new microprocessors in order to combat rival AMD. Definitely, their plan to come up with new chip architectures once every two years, rather than once every six years, has rewarded them significantly.

Noteworthy, Intel's Digital Health Group, which has invested heavily in information technology tools, is helping to cut healthcare costs and make the lives of doctors and patients easier. According to Louis Burns, head of the group, the trial at El Camino hospital in Mountain View,CA, is testing the safety and efficacy of INTC's chips to test computers with tablet displays among the nursing staff. The hope is to save doctors and nurses several hours per day in administrative work regarding the admission and discharge of patients.

Also at the Intel Developer Forum in San Francisco last month, Intel showed plans for technologies such as ``kitchen window'' computers, handheld computers that can be used in hospitals, and a laser-based communications technology that could improve the speed of computers by as much as 100-fold.

That said, however, here is the good news: for investors and traders, you'd be delighted to know that the slew of new chips and products have not yet been factored in the price of the stock. I adamantly believe that the rise in the share price from 12.00 to 16.00 is not the typical earnings run-up". For CEO Otellini to state that the bottom in the chip market has been accomplished, it's a bullish sign! It has been a tradition at INTC to issue a very conservative guidance.

From a technical perspective, INTC's behavior suggests a very bullish upside when mapped on the 3-month chart (chart included here is for recent 12-month period). The stock has traded in a perfect consolidation form from 12.75 to 15.15. The consolidation and basing patterns noted on the chart is highly suggestive of an ascending triangle formation. Thus, the resistance of 14.25 was breached and the stock remains well above that level, let alone all exponential moving averages.

Below are technical indicators based on a 3, 9, or 12 - month period:

A. Short term Indicators-- The 10-8 Day Moving Average Hilo Channel, 20 Day Moving Average Versus Price, 20-50 Day MACD Oscillator, and 20 Day Bollinger Bands suggest a buy. The 20 Day Average Volume is 66859422.

B. Medium Term Indicators-- The 50 Day Moving Average versus Price, 20-100 Day MACD Oscillator, and 50 Day Parabolic Time/Price suggest a buy. The 50-Day Average Volume 70653359.

C. Long Term Indicators-- The 100 Day Moving Average versus Price, and 50-100 Day MACD Oscillator suggest a buy. 100-Day Average Volume - 68089414.

From a fundamental point of view, several analysts have expressed views, both positive and negative:

According to Patrick Wang, Wedbush Morgan, he remains positive on the stock give with a target to 18/share. He states “solid” Q1 results and “reasonable guidance” that reflect “excellent controls on manufacturing, gross margin, inventory and operating expenses.”

Thomas Weisel Partners Ups target to $19 and repeats his Overweight rating. Cassidy writes that he remains “confident” that Intel’s competitive position, healthy balance sheet and cash flow generation will allow it to weather the downturn. Similarly, Avian Securities maintain a target of 19/share. “While the guidance may seem a bit disappointing, especially after the recent rebound in the stock, we believe INTC is clearly benefiting from the end of deskstocking trends and showing some initial signs of improvement.”

Canaccord Adams and have share similar views in that Intel is low-balling on revenue guidance, and that it should be able to grow 2%-5% sequentially.

Glen Yeung from Citigroup ups his target to $20. His thesis is that outsize growth and margin expansion are coming, and that the company has important product cycles ahead, including new areas like embedded processors and handsets.

Again, speculators might argue that the recent surge is most likely attributed to an earning run-up. I disagree. The breach of the 14.25 on 1.7 times the average daily volume cannot simply be an earning run-up unwarranted of worthy cause– The brewing of innovative products coupled with an undervalued balance sheet.

Disclosure: Author holds a long position on INTC

Comments

[Larry House:]

Jack, there are many great companies that appear to be begging for attention (I own INTC), but "compelling"? Until future economic activity is clearer, it is hard to make a "compelling" case for any company. You make a good case though.

Apr 17 11:11 AM

[analysis101vp:]

I definitely like Intel and its overall position of leaving AMD, it's only real competitor, in the dust. The one thing that Intel has to worry about would be the fact that they have to reprice their options to retain good talent. That's fine with me if ultimately they realize very healthy profits. It makes their task of cost cutting a little harder though, but I'm very confident that Intel will find creative ways to accomplish that task. That said, I have a little more interest in Dell since their ability to cut cost is more direct. They just use what's out there mostly from Intel, so even if revenue goes low, their cost cutting can actually increase profits. So I really like Intel for their dominant position in chips yet I like Dell for their cost cutting ability in this rough market.

Apr 17 11:45 AM

[Jack Haddad:]

Larry, INTC has sure frustrated many shareholders. I have interviewed their former CFO many times in the past; Andy Bryant was a goof CFO. However, he angered analysts during conference calls. He was very ubrupt and not conversational.... He would not say much to fully clarify an analyst's question. As a result, a negative reputation began to develop. It is for that reason that INTC stopped issuing guidance in 2005.

With Stacy Smith on Board as a CFO, analyst are beginnig to favor the stock and present well to Wall Street.



On Apr 17 11:11 AM Larry House wrote:

> Jack, there are many great companies that appear to be begging for
> attention (I own INTC), but "compelling"? Until future economic activity
> is clearer, it is hard to make a "compelling" case for any company.
> You make a good case though.

Apr 17 12:17 PM

[Jack Haddad:]

Dell is a great Buy at these levels!


On Apr 17 11:45 AM analysis101vp wrote:

> I definitely like Intel and its overall position of leaving AMD,
> it's only real competitor, in the dust. The one thing that Intel
> has to worry about would be the fact that they have to reprice their
> options to retain good talent. That's fine with me if ultimately
> they realize very healthy profits. It makes their task of cost cutting
> a little harder though, but I'm very confident that Intel will find
> creative ways to accomplish that task. That said, I have a little
> more interest in Dell since their ability to cut cost is more direct.
> They just use what's out there mostly from Intel, so even if revenue
> goes low, their cost cutting can actually increase profits. So I
> really like Intel for their dominant position in chips yet I like
> Dell for their cost cutting ability in this rough market.

Apr 17 12:46 PM

[Tech_analyst:]

All you said may be correct, but one notifying point is that Intel is a huge company that the cost cutting is a nightmare, the company is not innovative like AAPL bring a new devices to the market and excite the customers, it need to go through the ecosystem and other channel, this processes are lengthy and expensive for Intel. Intel is a manufacturing and foundry company; it is hard to achieve high gross margin unless otherwise to sale high volume chip. Example Netbook (ATOM Processor) is a very low ASP and low gross margin with 40 million units in 2009. Intel needs to work with other companies like TSMC or others that they have better integration process and having strong relationship with OEMs in Consumer electronics arena otherwise the gross is limited in low volume. Intel will stay in low margins for long time and it has big challenge as times come. It will not back to >50% gross margin up to the next two to three years, with or without AMD existence.

Apr 17 07:36 PM

[SJMDESIGN LTD:]

Intel is a good company but the stock has laagered over last decay
With 80% market share this is disappointing.
They have a low margin for a long time and will continue to do so.
Till they improve this the stock will have slow uptick.

Apr 18 10:15 AM

[Fighting Yoda:]

Intel can't be a good buy simply based on the CEO suggesting they hit the bottom. If they hit the bottom - why is Intel not able to give guidance?

Intel revenue were down $1 B sequentially Qtr-to-Qtr. Its receivables increased $300 M in one Qtr - indicates inventory was simply pushed out.

Apr 19 03:24 AM

[User 398762:]

Jack, you make a persuasive argument but remember that wishful thinking is not an investment strategy. I too am a hedge fund manager, and our equity fund is 100% short the market. Specifically, we still are buying SSG at a limit of 48.31. You have time. The problem is not INTC; the problem is the market. The market has rallied sharply--approximately 30%--over the past six weeks or so and a pullback is pre-ordained. The pullback, in fact, will take you pretty close to the lows of March 9. That is what we are advising our clients, using our proprietary indicators. Our proprietary indicators are confirming each other.

It's too early to tell whether we will take those lows out or just test them. If they are tested and hold, a new bull market will be intact; if they break, we will at best spend more time bottoming and establishing a base.

We are also long the bond (ten year bond) in our bond fund. But to address technology there is simply no way technology will head higher before it heads lower.

Just look at the charts of the overall markets: the DJIA or the S&P500. You will see what I mean. The 'hole', 'gap', 'valley' or whatever you care to call it, will be tested again to the downside--it simply has to be from a quantitative perspective, before the market heads higher.

Apr 20 11:07 PM

[Jack Haddad:]

Agreed.


On Apr 20 11:07 PM User 398762 wrote:

> Jack, you make a persuasive argument but remember that wishful thinking
> is not an investment strategy. I too am a hedge fund manager, and
> our equity fund is 100% short the market. Specifically, we still
> are buying SSG at a limit of 48.31. You have time. The problem is
> not INTC; the problem is the market. The market has rallied sharply--approximately
> 30%--over the past six weeks or so and a pullback is pre-ordained.
> The pullback, in fact, will take you pretty close to the lows of
> March 9. That is what we are advising our clients, using our proprietary
> indicators. Our proprietary indicators are confirming each other.
>
>
> It's too early to tell whether we will take those lows out or just
> test them. If they are tested and hold, a new bull market will be
> intact; if they break, we will at best spend more time bottoming
> and establishing a base.
>
> We are also long the bond (ten year bond) in our bond fund. But to
> address technology there is simply no way technology will head higher
> before it heads lower.
>
> Just look at the charts of the overall markets: the DJIA or the S&P500.
> You will see what I mean. The 'hole', 'gap', 'valley' or whatever
> you care to call it, will be tested again to the downside--it simply
> has to be from a quantitative perspective, before the market heads
> higher.

Apr 21 10:34 AM

[User 398762:]

Do you have a downside limit/target on the S&P500? What is it? Our indicators do not give us that--just a direction. For instance, we could stop cold within 25% of reaching the March 9 bottom; or, we could go 25% past that March 9 bottom--we won't know till we get there and we won't be able, almost with a certainty, to capture all of the move. Of course, we never are. But, our indicators consistently work. We have bought SSG with impunity at our limit price, as well as shorted TBT at our limit price, and feel a return of 10-20% will, ultimately, be given.

I would appreciate hearing your thoughts. Our work indicates that the 'valley' to the left of a peak is always retraced.

Apr 21 02:00 PM

[Jack Haddad:]

Interesting question... Was just deating it with seversal of my colleagues. All of us agreed that the breach of 847 on the S&P 500 last week would commence a new round of short-covering to take the index to 925. It didn't happen, partly due to the anemic volume. However, we closed today above that inportant resistance. It appears that were gonna consolidate between 8.30 and 855 until proven otherwise. Buyers are bidding the index heavily at 8.30. So, temporarily, I would set- a stop loss on the index at 830. If we breach 830, then we could go lower.

As to SSG, what is your target? here is a buy-wrote opportunity:

I love the May strike 45 and 50. If i was to initiate shares at the current price of 46.81, strike 50provides me with a 2.6/contract in intrinsic time value. Strike 45, however, provides the shareholder a 3.3/contract intrinsic time value and a hedge of roughly 3.00/share to the downside. I personally would choose strike 45.

Apr 21 04:46 PM

[User 398762:]

Thank you for your insight on the S&P. I am thinking SSG should be good for something in the low 50s. At our target limit, I'm expecting a 20% return (margined shares)...but we might get lucky and even double or triple that. Just depends on where the market heads and how hard it falls. I see AMD disappointed, as did Altera--and INTC's last trade was at 15 even.

LOL you're asking the wrong person about options; we don't trade them. I would speculate and say the 45's offer the best risk/reward ratio. Let's keep in touch.

Apr 21 11:10 PM

[Jack Haddad:]

By the way, Went long SSG this morning at 43.36. I haven't hedged the shares yet. This trade is meant to be an intra-day scalp. If I get 1.50/share out of it, I'll sell. Otherwise, I'll write either strike 40 or 45 calls against the shares for a shorterm play.


On Apr 21 11:10 PM User 398762 wrote:

> Thank you for your insight on the S&P. I am thinking SSG should
> be good for something in the low 50s. At our target limit, I'm expecting
> a 20% return (margined shares)...but we might get lucky and even
> double or triple that. Just depends on where the market heads and
> how hard it falls. I see AMD disappointed, as did Altera--and INTC's
> last trade was at 15 even.
>
> LOL you're asking the wrong person about options; we don't trade
> them. I would speculate and say the 45's offer the best risk/reward
> ratio. Let's keep in touch.

Apr 22 12:38 PM