Old-school is new-school when it comes to the technology sector lately, as some names from the past have re-emerged. While many investors thought the “four horsemen” tech stocks were dead, the old guard of Microsoft (MSFT), Intel (INTC), Cisco (CSCO) and Dell (now privately held) are scoring returns again.
For those unfamiliar, contrarian investing is not just about being bullish when everyone else is bearish. The smart contrarian is bullish on a stock when the crowd’s sentiment runs counter intuitively to the fundamental and technical analysis.
This is the situation that Intel stock finds itself in now.
Intel Stock Analysis
The semiconductor giant remains one of the kingpins of Silicon Valley. INTC currently owns about 15% of the semiconductor market, not insignificant by any measure. In addition, Intel’s last earnings report identified plans to increase capital spending for growth as their share of the data center and tablet market are expanding. For those that didn’t see, last year, Google (GOOG) was said to be working on producing its own semiconductors for data centers — something that appears to have been shelved for now. Point to Intel.
We’ve seen mixed earnings results over the last year, though the company has averaged a 2% earnings beat each quarter while posting healthy top-line sales figures. In other words, the fundamental story is strong for INTC.
The strong fundamental story has helped Intel stock surge beyond the S&P 500. For example, INTC is up 14% to more than double the S&P 500, and up 10% in the past three weeks, more than tripling the index. Intel’s allure is helped in part by an attractive 3.3% dividend yield, coming on a 22.5-cent quarterly payout that has improved 61% in the past five years.
Technically, Intel stock is ranked a “4” by our proprietary scoring system, which in essence just means we estimate it to outperform 90% of the S&P 500 over the next six months. The technical strength is also evidenced by the stock’s chart which shows it continuing to trade above its 50-day moving average which is also trending higher.
You would think that the positive technical and fundamentals would attract the bulls to Intel; however, a few sentiment gauges suggest otherwise.
Click to Enlarge First, the short interest. Short sellers have been driving their positions in INTC higher as they bet against a continuation of Intel’s strong trend. The last spike in short interest came ahead of the February rally that sent Intel from $24.50 to $27. Now, shares are setting up for another short squeeze as the short interest ratio (pictured on the right) is surging above 6 again.
Another view of the market’s pessimism toward Intel stock can be seen in the less-than-bullish analyst recommendations.
Click to Enlarge Current analyst recommendations only boast 33% buy recommendations at this time. Let’s put that into perspective. Facebook (FB) shares, which have woefully underperformed Intel stock during the past six months, are recommended by 88% of the analysts covering them.
In short, continued performance by INTC will prompt more upgrades on the stock over the next few months.
The combination of pessimistic sentiment on a stock that is as technically and fundamentally strong, like INTC, meets the smart contrarian’s profile for a bullish trading opportunity.
For now, we see Intel stock outperforming the market with a short-term target of $30, followed by a year-end target of $35 or higher.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.