Shares of semiconductor maker AMD fell considerably after well-liked CFO Thomas Seifert announced his resignation. Though we don't see any signs that the resignation was forced or due to an accounting issue, we think it's just another sign of the company's continued weakness. Seifert likely found opportunities that he finds more compelling than the floundering chip maker.
Competitor Intel (INTC) recently cut its guidance, and we think AMD could follow suit with a weaker than expected quarter. PC demand is suffering, and there's no reason for us to believe that AMD will be able to weather the storm any better than its much larger competitor. Though we think AMD's stock is cheap on a discounted cash flow basis, near-term catalysts look to have more downside than upside. AMD has virtually no mobile presence, and we think AMD's lower-end PC market share will continue to be cannibalized tablets. This is an important consideration for Valuentum-style investors -- just because a stock is cheap and has valuation upside, doesn't mean it will find its way into our Best Ideas portfolio. We demand both good value and good momentum characteristics, as these stocks have demonstrated considerable outperformance over time (click here for our white paper).
Further, we aren't very excited about AMD's progress with tablets. ARM Holdings (ARMH) and Intel will power the Microsoft Surface (MSFT), while Texas Instruments (TXN) powers the new Kindle Fire HD (AMZN. Samsung creates its own chips for its Galaxy tablets, and Apple (AAPL) powers its own iPads. Though we think Apple and possibly Amazon will be the biggest winners in the tablet market, AMD isn't even in any of the competitive products.
The one bright spot for AMD could come from video game technology, as it is still in the running to be included in the next generation PlayStation 4 (SNE) and Xbox 720. However, both systems continue to suffer from large delays, and the number of consoles sold simply won't compare to tablets and smartphones. In fact, we think the future of video game consoles is very much in question, which might explain why the companies have taken their time with the product refresh cycle.
Regardless, AMD has too much uncertainty for us to get excited about the name at this time. While it is undervalued, we do not think the firm warrants a position in the portfolio of our Best Ideas Newsletter (please view the links on our left sidebar for more information). We continue to prefer Intel and like its long-term prospects, even if weak PC sales weigh on results in the near-term.
Additional disclosure: Some of the companies mentioned in this article are included in our actively-managed portfolios.