Advanced Micro Devices Stock Is Still a Star Within a Strong Sector

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The predominant rhetoric is that we have so many looming axes swinging above investors on Wall Street. Yet the indices are near all-time highs. So eventually this psychological wall of resistance will break and the bulls will overshoot higher. And when that happens, the proven winners will lead the charge. This will include companies like Advanced Micro Devices (NASDAQ:AMD). AMD stock continues to shine and the cohort is still outperforming the S&P 500 this year.

AMD Stock: Advanced Micro Devices Is Still a Star Within a Strong Sector

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From a valuation perspective, AMD is not an obvious stock to buy. It has a three digit price-to-earnings ratio and it sells at more than five times sales. But since this is a growth stock, value is not what investors should seek. The expectation for AMD stock is that it will grow into today’s metrics in the future. In other words, they are supposed to spend a lot to grow a lot. Besides, value is in the eye of the beholder.

I prefer seeing AMD sell at five times sales, than Nvidia (NASDAQ:NVDA), which has a price-to-earnings ratio of 50 and sells at more than 10 times sales. Intel (NASDAQ:INTC) is cheaper with a P/E of 13 and 3.5 times sales, but its stock is lagging. In fact, AMD’s two-year stock performance is almost ten times better than the rest. So you get what you pay for.

AMD Stock Benefits From Good Management and Strong Momentum

In addition, current AMD management has the vote of confidence from Wall Street. Consensus is that CEO Lisa Su is executing on plans flawlessly so even in the face of Chinese economic war, the stock is still up almost 30%. In two years, AMD stock is up 190%.

Technically, AMD stock still has the upward momentum on its side on all time frames that matter. Meaning that dips are buying opportunities or at least they are not reasons to panic. This concept will be tested soon when AMD reports its earnings. Those events are binary in the short term, so we can never guess how investors digest the results regardless of their quality.

Currently Advanced Micro Devices stock is about 10% off the highs. So going into earnings it has resistance zones above. The first is around $33 per share and the next is just $1.50 higher. A positive earnings reaction could give the bulls enough momentum to burst through both zones. Above it there is nothing but open air and Advanced Micro Devices stock would rise for as long as the markets in general are also rising.

advanced micro devices stock chart

There are a few potential wrinkles next week. We are approaching the FOMC decision on cutting rates and if they disappoint, Wall Street will throw a fit. There is also the matter of a botched Brexit. This is a nagging wound that just won’t clot. Finally we are still in an economic war with China. So this is all to say that as much as I like AMD stock for the long term, I would be cautious going into earnings.

If I have profits, I would lock some in. And if I am looking to take new positions, I would definitely do that in smaller tranches, so I can manage the risk. Alternatively, I could use the options markets where I can risk a lot less to make the same bets. This way, if the earnings coin flip comes up opposite to my pick, I have a small finite amount of money at stake. The better trades are the ones made after the report with more information and conviction in hand.

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 for free here.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2019/10/advanced-micro-devices-amd-stock-still-star/.

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