The Ups and Downs of Intel

09/03/2004 12:00 am EST


Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

Intel has been the worst performing stock in the Dow industrial average so far this year. Will it go up or down from here? The answer may be both, depending on your time horizon. Here’s are outlooks from two leading forecasters Bernie Schaeffer and Chuck Carlson.

"The semiconductor sector continues to be hammered by the Street, yet optimism still reigns on the group," says Bernie Schaeffer, editor of The Option Advisor. "One stock receiving particular attention is perennial favorite Intel (INTC NASDAQ). The equity has tumbled lower under resistance at its descending ten-week and 20-week moving averages since the start of the year. INTC has also breached support at a 50% retracement level of a rally from its October 2002 low to its January 2004 high. Regardless of this weakness, investors remain enamored of this blue chip. The security's open interest ratio sits at 0.56, which is lower than 85% of all those taken over the past 12 months. The stock's short-interest ratio also rests at a meager 0.88, offering up no short-covering support. Wall Street is also infatuated with the tech guru, as 18 of the 29 analysts following the firm rate it a ‘buy’ or better. Any downgrades from this group could add more downward pressure to the stock's decline. Our outlook is for the stock to remain weak and for options traders, we recommend buying the Intel April 22.50 put.

Meanwhile, Chuck Carlson, editor of the DRIP Investor, notes, "Intel has plummeted more than 32% this year. The poor 2004 performance comes on the heels of a stellar showing in 2003, when Intel was the Dow’s best-performing stock, up 106%. Interestingly, if you go back one more year (2002), you’ll see that Intel the second-worst performer in the Dow that year, falling more than 50% that year. Let’s see: Terrible performer in 2002. The Dow’s best performer in 2003. The Dow’s worst-performer so far in 2004. Is it time to buy Intel? You’d have a lot of people on Wall Street saying no to that question. The general malaise in most technology stocks is one reason investors are staying away from these shares. But as history has shown, the time to buy Dow stocks is when nobody wants them. While Intel stock could see the teens over the next few monthsthe stock bottomed at $13 in 2002 and $15 in 2003 investors should start to move this stock up on their watch list.

"Long term, Intel should remain on the cutting edge of developments in the chip field. The firm spends well over $4 billion annually on research and development, an amount of money greater than the revenue of many of its competitors. The company’s cash-rich balance sheetIntel had $14.2 billion in cash and short-term investments at the end of the June quarter will help fund product development and acquisitions. Also, given the company’s cash hoard and the recent move by Microsoft to up its dividend payout, it would not be surprising for Intel to follow suit, especially if its stock price continues to stagnate. Intel stock has not yet demonstrated that it is ready to stop falling, which makes calling a bottom a bit precarious. Nevertheless, the stock is getting to a price level where further downside risk seems reasonably contained. I remain a long-term bull on these shares."

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