Everyone in the market knows that Intel (NASDAQ:INTC) is having problems. It has lost market share to its competitors and is having problems producing competitive chips. However, INTC stock is already higher on the assumption the company is going to get its act together.
For example, the company hired a new CEO, Pat Gelsinger, who started in mid-February. He is supposed to turn the company around. Whether he will be successful is still up in the air.
However, the market already believes he will succeed. INTC stock is already up 28% year-to-date, as of Mar. 11, at $63.82 per share. In fact, it rose almost 2.5% in the past day alone.
The Ultimate Contrarian Stock
As a result, INTC stock is now the ultimate contrarian stock. The best time to buy it is when the stock is at its lows, when everyone is negative on it. You should buy it only when the market hates it the most.
And that is not now. It is too late. You should have bought it in late October 2020, when it was in the low $42-per-share range.
For example, on Oct. 22, Intel came out with its quarterly earnings and reaffirmed that there would be delays in its seven-nanometer chip production. CNBC quoted the previous CEO Bob Swan in an interview on Oct. 23 that Intel might outsource the production of that chip. The company would be admitting defeat.
That was too much for the market. It hit its lows. Guess what? That is exactly the point at which you should have invested in INTC stock. And that does not make much sense. But, frankly, that is exactly how the market often works.
I recently wrote about this contrarian investing technique: “Always Be a Contrarian, If You Want To Pick Winning Stocks.” One of the three points I make in the article is that this is a messy and confusing process. The time of maximum uncertainty, as Sir John Templeton said, is the best time to buy. But you will not have all your questions answered at the point.
In this case, there was no way to know whether Intel would get its act together. By the way, there is no way to know even now. But so many people believe that it will fix its issues, that INTC has already rallied.
What to Do With INTC Stock
Now, in fact, the contrarian thing to do would be to sell the stock. You might actually give up some profits on the upside. But, if in fact Intel still can’t regain market share, its recent rally might be premature.
One way to know that you are on the right side of things is to do the opposite of analysts. For example, most of them believe now that INTC stock is at fair value. For example, TipRanks.com indicates that 31 analysts have an average price target in the past three months of $62.85. This is slightly below its current price today of $63.82.
In other words, buying INTC stock is not a contrarian thing to do. You want to pick the stock when analysts hate the stock most.
When I was studying for my MBA at George Washington University, one of our professors brought in a successful money manager in the Washington, D.C. area. We knew he was successful since he had taught himself to fly his own corporate jet. When he came in, he said he did not have a philosophy of picking stocks — did anyone have a question? “Yes,” someone said, “how do you know when to buy a stock?” “Simple,” he said, “I just pick through the new 52-week-low section of the NYSE. That’s it.”
We were dumbfounded. How could that work? Weren’t these the worst stocks? Well, it worked for him. And this is the theory of contrarian investing simply explained.
Here, Intel, a massive $260 billion market capitalization company, is not likely to go out of business with its huge legacy cash flow and cash and assets. Therefore, buying when everyone hated it was the best way to make money.
If you had bought INTC stock on Oct. 29, when it closed at $44.11, you would now have a 45% profit. If it moves higher from here, it will simply be gravy.
I suspect most investors should wait for another stumble in INTC stock before buying into it.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.