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The Oxen Report: A Lucrative Week Play in the Semiconductor Line

|Includes:Advanced Micro Devices, Inc. (AMD), INTC
The Oxen Report: A Lucrative Week Play in the Semiconductor Line

Guest Author David of PSW 

It is the start of Q1 2010 earnings reporting season. Things kick off this afternoon with Alcoa Inc. (NYSE:AA) and will continue throughout the week with big names in the financial and semiconductor industry. This earnings season has mixed reviews as do most, but with a lot of underestimation the past couple quarters, I do worry about overestimation this quarter. One sector that should get off to a strong start will be the semiconductor industry. Intel, Fairchild Semi, and Advanced Micro Devices all report this week, which brings me to my Play of the Week.

Play of the Week: Advanced Micro Devices Inc. (NYSE:AMD)

Analysis: The shadow that Intel Corp. (NASDAQ:INTC) is a large and overbearing one for sure. It is very seldom that AMD can gain market share on the Intel giant. Yet, in the short term, such as this week, the stock may actually be the beneficiary of the buzz that Intel may create. There are a lot of reasons to believe that AMD could make a splash this week, and it starts with Intel. Tomorrow evening, INTC reports their quarterly earnings and should create buzz throughout the day. Additionally, it is rare that Intel does anything but outperform. The company quarter after quarter does what is necessary to report above estimated earnings. That sort of consistency is something I am willing to bet on to happen again this quarter, and if it does, it will mean a nice gain for AMD as well.

Most analysts are getting behind these two giants because of the increase in demand for personal computers and servers that was seen throughout the first three months of 2010.

BMO Capital Analyst Ambrish Srivastava comments, "Our checks suggest that demand remains strong, partly driven by strength in notebooks." He continues to comment that "Intel is likely facing some difficulty in satisfying demand (on servers), and could be ceding some share near term."

That demand is being filled by AMD. The company recently rolled out new server chips that are cutting into Intel’s market share, which is positive for AMD and should continue to give the stock a boost. The company additionally has some cash flow to work with after they sold off GlobalFoundrries. Many analysts believe AMD is turning a corner and bringing more consistency to their name. These are all good things.

Psychologically, I also think that investors are going to buy into AMD throughout the week. The company provided a 944% quarterly beat last quarter. That sort of gain probably will not be matched, but investors will use that gain to propel the stock and pump demand into the stock. Further, the company got upgrades throughout the quarter. Finally, one year ago the company reported an EPS loss of 0.66. This quarter will provide a much nicer gain, and it should be and is expected.

The stock is, techinally, in a great place to move up throughout this week. It is cheap below $10, but it is not overbought and just slightly overvalued on Relative Strength Index. The stock has lots of room on the upside to its upper bollinger band and should move in that direction. The buzz that I expect Intel to provide, coupled with the company’s own buzz is reason to think this thing has a shot.

We want to get in today when the stock has not moved too greatly to the upside. I think we can look for 3-5% in gains throughout this week as modest. I want to hold until we reach those gains. If by Thursday we have not hit those gains, then I think we will reassess whether it is worth holding into earnings based on what Intel and Fairchild have reported.

Entry: We want to enter today in the range of 9.40 - 9.50.

Exit: We want to exit for 3-5% gain by Friday.

Stop Loss: 4% on bottom.


Good Investing,

David Ristau


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Disclosure: none
Stocks: AMD, INTC