We’ve seen an interesting development in the U.S. chip market. While that includes a number of stocks and equipment makers, three stocks often grouped together are Nvidia (NASDAQ:NVDA), Intel (NASDAQ:INTC) and Advanced Micro Devices (NASDAQ:AMD). Is Intel stock the best among the three?
I don’t think so, personally.
While it may have a low valuation and the most attractive dividend yield of the bunch, it’s got stagnant growth and trails in several key growth markets. With that said, it’s hard to fight the tape as the price action in INTC stock looks attractive.
Let’s explore this name a little more closely.
Valuing INTC Stock
Intel stock price has fallen 2% over the last year. That far outpaces the 31.8% fall in Nvidia, but badly lags the 101% run in AMD. Owning all three of these stocks isn’t a terrible idea for an investor who wants exposure, but wants to diversify as well.
That allows investors to take advantage of Intel’s dividend and AMD’s strong top- and bottom-line growth.
When focusing solely on INTC stock, here’s what we’re looking at: Shares trade at just under 12 times earnings, which is quite cheap in most investors’ eyes. However, analysts expect earnings to decline 7.4% this year before rebounding just 4.7% next year. On the revenue front, estimates call for a 3.5% decline this year and a 3.9% rebound in 2020.
Essentially, we’re looking at 2020 revenue being just a bit higher than 2018, while analysts actually expect 2020 earnings to be lower than 2018. Now you see why Intel stock price comes with such a low valuation.
That’s not attractive to me when it comes to the chip space. While Nvidia and AMD may command higher valuations, the outlook is better. AMD has positive growth forecasts for this year and strong growth priced in for 2020. Nvidia analysts expect a revenue and earnings slowdown this year, but a robust rebound next year.
Shares of Intel do yield 2.52%, which is attractive among its immediate peers. However, if one is in search of income, they can do better than INTC stock.
That said, it does have solid profit margins (about 29% over the trailing 12 months) and stout free cash flow ($12.5 billion over the last 12 months). Further, its balance sheet is solid too, with total assets of $129.4 billion more than doubling its total liabilities of $55.8 billion.
Trading Intel Stock Price
Fundamentally, I view Intel stock as a mixed situation. It’s definitely not bad, but it’s not kicking out the robust growth investors would like to see. That’s why I feel so strongly about owning it as part of a basket approach with NVDA and/or AMD, but not as a standalone.
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Intel stock price is flirting with a major move over the $50 mark. This level has played a key role over the past year and INTC stock is on the cusp of rallying through it.
If it does push through, Intel stock faces the 50% one-year retracement at just under $51, and the 38.2% retracement near $53 after that. Should it get to the latter, it will be at its highest point since April, when the stock brutally collapsed from $57. Further, if it can get to that 38.2% mark, it will officially begin filling the gap back to the $57 mark.
That doesn’t mean it will get there necessarily, but it will be something to watch. That’s particularly true if Intel stock can reclaim the 38.2% retracement.
Now, if Intel stock price can’t breakout over $50, or if it does and later fails to hold this mark as support, we have to look at the downside.
The first level is the 20-day moving average, which is at $48.55 and near it is the 200-day at $48.64. The only reason I mentioned the 20-day first is because it’s trending higher and will soon surpass the 200-day mark.
Below both moving averages brings up the 50-day down at $46.61. If Intel finds itself below all three marks, it could put a test of $45 on the table. One thing is pretty clear though: Its earnings report on July 25th could be a major catalyst for a big move in either direction. In that case, know your levels.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long NVDA.
