The latest merger between Mobileye (NYSE:MBLY) and Intel (NASDAQ:INTC) had Wall Street buzzing last week. While MBLY shot up 28% after it was announced that the company will be bought out for $63.54 a share, INTC stock fell 2% and closed below its 200-day moving average for the time since last June.
Prior to Monday’s breakdown, Intel stock had been consolidating in a trading range with the 200-day (the red line) acting as support and the 50-day average (the blue line) as resistance. The breach of support came on double the average volume, which is a bearish sign that highlights the large number of sellers.
Was Mobileye a Good Buy?
The consensus on the Street is that Intel paid too much for Mobileye. That ultimately will be determined years from now, but what I found interesting was the fact that an Intel executive came out and highlighted the amount of data the company will be able to gather as a direct result of the acquisition.
Think about it: Mobileye is a key player in the autonomous automobile industry, making the chips that are used in driverless and semi-autonomous vehicles. And all those chips control the sensors that map the road. The information that Intel will now be able to accumulate has the potential to be worth much more than the $15.3 billion it paid in the transaction.
There has been a flurry of analyst moves since last Monday’s news, and Wednesday morning Credit Suisse jumped on the bandwagon, downgrading INTC stock to “Neutral” from “Outperform.” What’s interesting here, though, is that the Mobileye purchase was actually applauded. The downgrade was based on Intel being expensive.
I don’t share that mindset, but I also do not see INTC stock as an overly attractive investment from a fundamental view right now. Its earnings growth is slowing, and the company needs to find more catalysts to boost its bottom line.
Bottom Line on INTC Stock
Perhaps the Mobileye acquisition is a step in the right direction.
I like the potential that Intel’s 3% dividend yield represents, but I wouldn’t be a buyer just yet. If INTC stock weakens further but is able to hold price support near $33.50 in the coming weeks, I might consider opening a position in the $33.50-$34.50 area based on a combination of the acquisition and the potential within the chip sector.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on Breakout Stocks where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.
