Tech stocks went into high gear in the middle of May. The Nasdaq rallied 15% and the chip stocks followed along. Advanced Micro Devices (NASDAQ:AMD) stock ran 32% from low to high. It has since retreated -9% off the top, but the 12-month performance is still impressive.
Owning AMD stock for the long term is absolutely a viable thesis. Timing it right short term is the tricky part now. Spoiler alert, I’d rather delay deploying new risk until after a substantial dip.
I have been a fan of AMD stock for a long time. Management earned its kudos in my book. They normalized their financial metrics pretty quickly. The turnaround was impressive and investors who believed in it reaped a handsome reward.
At this stage, I would prefer waiting out a few weeks before deploying new money into it. I say this with a clear conscience because I have been consistent with my bullish message.
AMD Stock Is Cheap
The company went from expensive to cheap in a short period of time. In the last three years, they doubled their revenues and increased their net income 10 times. AMD stock now sports a svelte 9 price-to-sales and 40 price-to-earnings ratio. This is much cheaper than Nvidia (NASDAQ:NVDA) its main competitor. Intel (NASDAQ:INTC) is the cheapest but for good reason while management rights that ship.
All three are winners and will have strong demand for years. The whole world is going digital and in a panic. Buying the dip will yield the best results in the short and medium terms. This week’s dip is not yet big enough for me. I am confident that there will be better opportunities later this year.
My favorite chip stock remains AMD. INTC is second and NVDA is third because of value. I could change my mind if Nvidia crashes to bring it back in line.
For almost a year, AMD has traded in a very wide horizontal range above $73 per share. If the bulls lose that for any reason, they risk losing another 12% to 15% from there. That’s the great entry point that I am seeking this year. If it doesn’t come so be it. I am willing to miss out on whatever upside there is above here.
It Can Get Cheaper From Outside Factors
We have to remember that stocks don’t trade in a vacuum. They will need the help of an entire market. The indices are running on fumes and into diminishing returns from the economic relief packages. We could be going into a tough fall season. There’s also the chip shortage problem that certainly won’t help matters much. These are precarious situations for stocks. This is not a reason to short them, but at least be patient and not chase.
Because the markets are at all time highs and for so long, we all must be traders not just investors. Even those who are in it for the long term should think about having protection or balance. We have seen all dips find immediate buyers for too long. My watch list has a bunch of stocks that have fallen into support. I could assume that they will all hold, but if they don’t, the leg lower will be painful.
What happened in March to the Nasdaq was likely just a scary preview. The higher we go without a correction, the faster and harder we fall. My message today is that it would be better to wait for a bigger dip. Therefore, I am committing to buying the dip that suits my taste. Anything near $70 per share would be good, closer to $60 would be awesome.
Last year during the pandemic panic, I successfully bought the dip in size. Smart money stepped up to the plate while the masses were panicking. I do the homework now so I can repeat the process again. My bet is there will be another tizzy this year.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
