What’s the next move for Intel (NASDAQ:INTC)? Shares have been on a tremendous run since August. But, the coronavirus from China is starting to be priced into markets. After reaching prices as high as $69.29 a share earlier this month, Intel stock has started to dip, closing at $59.73 on Tuesday.
The broad-line chip maker could face troubles down the road thanks to the outbreak. With its large sales and manufacturing presence in China, the company’s near-term results could fall short of expectations. Yet, with its low valuation relative to competitors AMD (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA), Intel stock may face less downside risk.
With this mind, Intel stock could be a great “buy the dip” opportunity. If the current crisis subsides, the recent runaway bull market could continue, lifting all boats — including INTC stock. Yet, markets could just as easily continue to plunge. We don’t know whether coronavirus will or will not trigger an economic downturn.
In short, with Intel’s underlying business facing headwinds, and the overall markets experiencing volatility, today may not be the time to buy Intel stock. Let’s dive in, and see why it’s best to stay on the sidelines for the time being.
Intel Stock Could Outperform 2020 Expectations
Coronavirus is far from the only concern regarding Intel stock. AMD’s recent market share gains have come at the expense of Intel. Competition from Nvidia is another negative factor. If these two high-flying peers continue to make gains, Intel could be left in the dust.
Yet, it’s not as if Intel is some floundering enterprise. Intel beat sales and earnings estimates for the last quarter of 2019. But analysis consensus continues to imply Intel stock faces slow sales and earnings growth over the next year.
Intel’s forward guidance backs up Wall Street’s conservative consensus. But according to Deutsche Bank’s Ross Seymore, the company could outperform projections. The analyst believes Intel’s guidance is too conservative. It implies strong growth in the first quarter, but sequential sales declines through the rest of the year. But, according to Seymore, this is in contrast to Intel’s past performance. The company has traditionally had better PC and data-center sales in the second half of the calendar year.
Reiterating his “buy” rating and $72 per share price target, Seymore believes Intel shares offer “a positive risk/reward” compared to “an otherwise expensive semiconductor sector.” I can’t say I disagree with him on that point. In today’s frothy market, I’d rather own Intel stock than shares in pricey peers AMD and Nvidia.
Yet, Intel stock being “cheap” doesn’t make it a buy at today’s prices. While pricier peers have more room to fall, Intel shares could take a further tumble as well in the near-term.
Definitely a Value Stock but Could Still Flounder
With a forward price-to-earnings (P/E) ratio of 13.5, Intel stock is a bargain. Peers AMD (forward P/E of 58.9) and Nvidia (forward P/E of 45.7) sell at much richer valuations. But earnings multiples aren’t the end-all, be-all. If that were the case, the latter two names wouldn’t have performed so well in the past year.
Considering growth projections, it’s fair that Intel stock trades at such a low multiple. Is multiple expansion in the cards? All bets are off. With uncertainty thanks to coronavirus, it’s hard to see whether the overall market will continue to make new highs.
The runaway bull market has played a big role in helping slow-growing Intel stock expand its forward multiple. If anything, Intel shares now stand a greater risk of multiple contraction. Even if Intel’s earnings aren’t hurt by the coronavirus, a market correction could send valuations back to lows last seen in the early 2010s.
In other words, a P/E ratio below 10. Intel stock traded at that valuation between late 2010 and early 2013. With projected 2020 earnings of $4.76 a share, that implies Intel could fall below $47.76 a share.
Let Markets Absorb Coronavirus Before Buying Intel Stock
The coronavirus first made headlines in January. But it looks like only now is the pandemic creating fear, doubt, and uncertainty in the markets. It’s hard to predict whether the outbreak will trigger an economic slowdown. If this is the start of a downturn, Intel stock will not be immune to market jitters.
Intel stock could be cheap today. But “buying the dip” this week could actually mean “catching a falling knife.” Based on historical P/E data, Intel could easily fall below $50 a share. At that price point, shares could be a buy. But until then, take your time, and stay on the sidelines.
Thomas Niel, contributor to InvestorPlace, has been writing single-stock analysis for web-based publications since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.