As of Friday, July 19, 2013, the price for Intel Corporation shares (NASDAQ:INTC) closed at $23.04, down 20 cents (0.88%). After hours, the price rose to $23.06, up 2 cents (0.09%), where it stands at the time of writing this article. What does that mean at this point in time? To understand the stock price at its current level, you need to understand it in the context of the history of the life of the stock. Since January 2001, Intel's stock price has been oscillating in a trading range between $20 and $30. There have been several jumps below and above that price range since then. Back in the '80s and early '90s, Intel was a penny stock, barely reaching a dollar at times. From the early '90s to the late '90s the stock price steadily rose. For the first time in January of 1997, Intel rose to become a $20 stock.
Between August of 1998 and August of 2000 the price of Intel's stock shot up to $74.88 (around the third week of August 2000). You remember August of 2000, don't you? That was when the Russian submarine Kursk sank to the bottom of the Barents Sea and everyone onboard died. That was also the year (March 2000, the height of the dot-com bust) Robert Shiller published his book "Irrational Exuberance." The name was derived from Alan Greenspan's famous quote 4 years earlier. In fact, that was during the time when a lot of stocks on the NASDAQ sank to the bottom of the "Liquidation Sea." That was during the same year when Pets.com, the epitome of the dot-com companies, went from paying $1.2 million in January 2000 for their sock puppet, Super Bowl ad to liquidation in November of that year. Pets.com went from an $11 IPO to $0.19 about 268 days after it went public. Ouch. Intel's stock price crashed to around $20 the following year. Not a fun time for investors who held on to their Intel stock during that bubble-bursting era. The point being, Intel is not just any old stock. It has lasting value, although it is sensitive to market swings and value corrections.
So Intel, at this very moment, is headed below its current mid-range trading price between $20 - $30. Is it time to still hold? Buy? Sell a portion of an Intel position? Or run completely away from Intel stock at this time? Is Intel going to tank or rise? Before any trader or investor does anything with INTC, it is best to research the fundamentals and the technical position of Intel at this time and space. I like to call this spatial recognition of the stock. That is, I want to know where is Intel as a company, and its stock, at any given moment in the market and what direction is it heading? Before you waste time on any stock make sure it is worthy of your time and money. The company may sound good but is it really sound? I like to use an algorithm for sifting through stocks and finding bargains that will earn money. The first few rules of my algorithm will let me know if any further time spent on it would be wasted, or if it is a covered gem.
The very first rule before buying a company's stock is to look at its earnings, fundamentals, and its valuation. Intel's earnings are dependable. The company reported 2nd quarter revenue of $12.8 billion and net income of $2.0 Billion. INTC EPS came in at $0.39. According to CEO Brian Krzanich, "Intel generated approximately $4.7 billion in cash from operations, paid dividends of $1.1 billion, and used $550 million to repurchase 23 million shares of stock." (Krzanich, 2013) When a company buys back its own stock, that means there is less stock (fewer fractions of the company) for the same sized company. Your stock holding has now essentially become a bigger piece of the company; its value has increased. Look at Intel's earnings year-over-year for the past three years. Since fiscal year 2010 earnings per share on a quarterly basis have been in the 0.40 to 0.59 range without a loss in any one of those quarters. Solid. This is a company to keep on the radar screen.
Look at Intel's fundamentals. Annual revenues have grown by 6.8% and the annual EPS has grown by 12.63% over the past five years. Income before taxes, although decreasing slowly over the past three years, is still double from what it was 5 years ago, but will pick up in the next half of this year. 2012 Total Liabilities & Shareholders Equity was 84.351 billion which has increased year-over-year by approximately 10 billion on-average. As of this current quarter it is 85.661 billion. This means Intel is not a shabbily run company, and merits investment - at the right times. What is Intel's valuation at this point in time? The company has a P/E of 12.45. The semiconductor industry has an industry median P/E of 17.59.
What that usually indicates is that investors don't expect Intel to earn as much in the coming future as the other companies in the industry. This is because investors are willing to pay more for the other companies' stocks. They are willing to pay more because they are expecting more earnings and growth in the future for that company. However, the P/E ratio does not tell the complete story. Intel's PEG value is 1.15, while the median for the industry is 1.89. This means that Intel's stock is undervalued as compared to the other stocks in the semi-conductor industry. These valuations indicate that the market is not too keen on Intel right now. Remember Warren Buffett's advice to his shareholders in 2004: "Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful."
"Trendy" Intel? You wouldn't think of a chip maker who spends a lot of time in contamination-free rooms wearing "bunny suits" and being paranoid of viruses to be trendy - unless you're a real geek. However, Intel is heading on a growth trend. Next quarter is going to increase its revenue by another billion dollars, give or take $500,000, with overall capital spending down by $1 billion from prior expectations as stated in the company's most recent earnings report. According to Len Jelinek, the Director & Chief Analyst for Semiconductor Manufacturing at IHS Electronics & Media Market Intelligence, the weak spot continues in:
...the data processing as well as consumer segments where power management chips are used...strength (comes) from the wireless and industrial markets, with the vigorous activity expected in those areas powerful enough to sustain the entire second half in growth...." (Jelinek, 2013).
The next half of 2013 will sustain growth for Intel.
To answer the question of whether an investor or trader should buy Intel: The answer is an emphatic yes. But there are an even more important questions to answer - like when is the right time to buy Intel stock, and if I have Intel's stock, should I hold on to it? The answer to those questions depends on whether you are a trader or an investor. If you are an investor and do not trade in-and-out of stocks, then you should hold on to Intel. The company pays an annual dividend of $0.90, which yields 3.91%. That is better than Apple's (NASDAQ:AAPL) yield of 2.87% at the moment. Also, as I discuss in the following section, Intel is set for a nice ride up the charts after it goes down first. Hold on, and you investors should buy in to more Intel - but not at this point in time. Wait. For the reasons outlined below, you should purchase the stock at a better entry point.
Now that an investor or trader understands that INTC is an excellent candidate for purchase, you need to understand when to purchase. This coming week may not be a good time. Why? The technical analysis declares that the stock is going to go lower in the short term. Why sink your money into the stock now, just to see it lose value in the next few days and weeks? Wait awhile until this dependable stock hits a bottom. You will enter at a better price level and make more money for your buck, with a little patience.
INTC is being shorted. There is a 5.0 billion float of the stock with a 4.74% short and 5.1 days to cover as of Friday, July 19, 2013. That is a short increase of 2.69% from last week. The stock price is under pressure to go down. The stock's RSI is at around 39 from a short term perspective of several quarters. The selling pressure has a ways to go yet. The price may find itself touching around the $22.50 to 21.80 levels, more or less. And if the S&P crashes down a bit (like it is set up to do here soon), the price of INTC could go even lower. Wait a few more days or weeks. The stock will turn around afterwards and possibly shoot up to around $28 - $30. There will of course be a few bumps in the road along the way. So a possible $8 - $10 increase in your stock purchase is not bad at all. It all depends when you jump in to this great company's short-term ride down and then back up again. Have fun! This is a three- to six-month trade. The ride up may be choppy and will possibly end by this winter.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in INTC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.