Early in May, I said that Intel (NASDAQ:INTC) stock was too cheap at $45 per share. Well now, Intel stock is above $46, so while not a multi-bagger win it’s still up. But the point I made then is even more true now. INTC has more upside potential than downside risk from here.
I am a big fan of the products that Intel provides, but not so much of the recent management decisions. But therein lies INTC’s potential. If they’re not making good decisions now then they can remedy that going forward in order to create value in Intel stock price.
More importantly, since my write up, we had another test of support in equities and INTC. The test was successful so I can assume that the zone around $43 per share in Intel stock is a floor for now.
Conversely, I recognize that if for whatever reason the floor fails, then it could trigger another leg lower that could target $36 per share. This is not my forecast, but it is a scenario that exists.
As far as valuation, Intel is cheap from a P/E ratio perspective. It sells at a 10.7 trailing P/E which is half as expensive as Nvidia (NASDAQ:NVDA) and maybe ten times cheaper than Advanced Micro Devices (NASDAQ:AMD). While this doesn’t guarantee success, it does say that owning Intel shares at this valuation is not likely to be a financial catastrophe in the long run.
AMD is still the star of the group, so if I wanted to go long the group and if the markets continue to rally it would be the better choice. But it also has a lot of froth that could fall flat the first sign of trouble. The floor in AMD relative to INTC is an abyss too deep for my taste here.
Trading Intel Stock
Intel has the potential of a catch-up trade to redeem itself and fill the gaps above. The first one would bring it up to $50 per share area. The second one is more exciting that would take it all the way to $58 or higher. There will be resistance on the way up at $48, $51, and $53. These were ledges from which Intel fell apart on the way down.
The rally won’t be easy. The weekly chart shows that the current zone around $48 per share has been pivotal since October of 2017. So onus is on the bulls to reclaim it so they can start using it as forward support. The good news is that the same chart also shows that anything below $43 per share should be solid support. So to help the INTC stock bulls, there is a nice stable footing for them to step off of.
In 2016, Intel stock made a major $10 leap higher from the $38 zone. So onus is on the bears to prove that it was a mistake. Its current fundamentals and the macroeconomic environment, suggest that it’s not a realistic bearish expectation to fall back below. The U.S. is at full employment, and the global central banks are in full bull mode. So I fail to see the reason why a quality stock like Intel should revert to 2016 prices.
Cheap valuation does not guarantee upside price movement. So those who know options can avoid buying shares and hope for a rally. They can instead sell puts against the support levels to create income with no money out of pocket. This way even if the stock meanders lower this year they can still profit.
The Bottom Line on Intel Stock
In essence they would be getting long INTC with a nice pad from current price just in case the macroeconomic conditions change dramatically. After all we are still at a threat geopolitical headlines especially from the economic war between the U.S. and China.
Although I see an upside opportunity, the price action is not intuitively bullish. INTC stock is lagging the sector. Year-to-date, it’s down 1% while AMD, NVDA and the VanEck Vectors Semiconductor ETF (NYSEARCA:SMH) are up 74%, 10% and 20% respectively. So critics can argue that INTC stock is broken. I’d say it’s definitely bruised and the company is healthy enough to fix it.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room free here.
