The financial markets are often as duplicitous as they are endearing, creating an emotional ride that Intel (INTC) stock holders are all too familiar with. Throughout much of 2015, INTC shares have battled declining sentiment and a tough personal computer sector that continues to see demand erosion.
At the depth of the recent broad market correction in late August, Intel stock was down more than 27%, scaring off huge chunks of the technology firm’s faithful following.
Yet, the comeback that INTC has staged in the months following the selloff was just as noteworthy — reminding investors never to count out the semiconductor giant.
Ironically enough, the core challenge for Intel stock is the maintenance of Moore’s Law — a concept named after the company’s co-founder, Gordon Moore, who forecasted that major improvements in computer chips will occur every two years.
Although the stunningly linear progression of chip technology has defied critics and scientists alike for 50 years, Moore’s Law may soon be coming to an end.
The most advanced semiconductor circuits have become so small that their atomic structure would be compromised if it became further compressed. At some point, the equipment required to bend the laws of physics would be prohibitively expensive.
The negative impact of such a development hasn’t stopped INTC’s enthusiasm from diversifying away from its primary income source. Although Intel has near-100% dominance of the service processor industry, shipments of PC products this year are forecasted to drop 17% against its 2011 high.
Rival companies such as Samsung Electronics (SSNLF) have their eyes set on the mobile space, competing directly against the likes of Apple (AAPL) and Qualcomm (QCOM).
With Intel stock’s market capitalization exceeding $156 billion, it certainly has the firepower to take on most of its adversaries. In addition, INTC ranks high in profitability metrics: Both operating and net margins improved at an average of 16% in fiscal year 2014 against the prior year, and current quarterly trends appear to be retaining most of this positive momentum.
Also, Intel stock’s revenue growth per share has picked up steam in the first three quarters of 2015 as compared to their respective year-ago levels. These factors overall have contributed to INTC having a relatively undervalued forward price-earnings ratio of 14 — or 18% below that of the industry average.
Technically speaking, trading sentiment for Intel stock confirms its generally robust fundamentals. Since bottoming on Aug. 25, INTC has jumped more than 25%, enough to scale back its yearly loss to 8.5%. Further adding to optimism is a “life cross” that formed a few days ago, where INTC’s 50-day moving average rose above its longer-term 200-DMA.
Since Intel stock’s initial public offering, there have been 21 life crosses that flashed not inclusive of the most recent occurrence.
A little known fact is that in 14 of those life crosses, the markets have been very favorable to Intel stock, which on average gains 16.6% over the next three months following the bullish signal. Of the seven occurrences where INTC failed to move higher, losses averaged 10% over the same time frame.
However, the historical probability of incurring this loss is at 33%. Therefore, investors have much higher odds of being on the right side of the trade if they decide to buy into Intel stock’s current momentum.
Intel certainly faces substantial challenges from shifting paradigms in its core industry, and while the PC market should stabilize in 2016, such risks should not be taken lightly.
Intel’s ability to maintain health and stability in its books, along with its enormous brand leverage, should provide enough resources for Intel stock to forge ahead.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
