Intel Corporation (INTC) shares are worthy of a long-term investment but investors with shorter-term horizons might want to hold off on buying the shares now, because a few headwinds are looming and could drive the stock lower in 2012. Here are some reasons why Intel shares could trade lower and offer a better buying opportunity for investors later this year:
1) Intel recently released earnings and the stock traded lower due to concerns over a rise in inventories, and because first quarter 2012 GAAP net income was $2.74 billion, down from $3.16 billion in the same period last year. If first-quarter earnings are not impressing investors, there are number of factors that could make for even weaker results in the coming quarters, some of which are listed below.
2) Intel shares were trading at about $23 as recently as December, and have been in a major uptrend, rising to about $28.50 just before the earnings release. Much of this gain was probably attributable to the general rise in the market in 2012. However, the markets are turning more volatile and the upward momentum that both the market and Intel shares had been experiencing clearly seems to be broken. Investors who were in the stock because of the upward momentum are likely to exit the trade and even some professional traders seem to have soured on the stock for now. CNBC's Fast Money Trader, Joe Terranova thinks the stock is "rolling over" and Guy Adami believes the shares could hit $26.
3) Many investors have been bidding up stocks like Intel because of
the dividends. That has driven many stocks close to new highs in 2012, but that trend could see a reversal as the year comes to a close. Under President Obama's 2013 budget, dividend taxes will nearly triple from 15% to as high as 44.8%. Capital gains taxes are also expected to rise, and that could prompt some investors to cash in before having to pay the higher rates. A big jump in dividend tax rates could quickly dampen investor interest in the markets and dividend stocks in particular.
4) The situation in Europe is very uncertain and appears to be
deteriorating. Spain is starting to look like the next Greece in terms of economic decline and unemployment is already near 24% in the country. Furthermore, new austerity measures are about to take place in Spain and other European countries. This could turn what is now expected to be a recession, into a possible depression in the coming months. The crisis in Europe is starting to impact revenues and earnings for some American companies. Just recently, Kellogg Company (K) reported weakness in cereal sales coming from Europe. If cereal sales are slowing down there, I bet sales of products that contain Intel chips could be slowing too. Here is where one article summarized the European impact on Kellogg (K):
"We are obviously disappointed with the performance of the company in the first quarter of 2012. We faced more significant challenges in both Europe and in some categories in the U.S. than we expected," President and CEO John Bryant said in a statement.
I expect the situation in Europe will get worse and that the impact on companies that have exposure to the European consumer will be felt more significantly in the coming quarters. With the run that Intel shares and the stock market have enjoyed, now might be a good time to take some chips off the table. In the event of a significant market correction, I believe opportunities to buy Intel below $25 per share will come.
Here are some key points for INTC:
Current share price: $27.45
The 52-week range is $19.16 to $28.78
Earnings estimates for 2012: $2.49 per share
Earnings estimates for 2013: $2.68 per share
Annual dividend: 84 cents per share, which yields 3%
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclaimer: 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.