Will Recent News Hurt Intel’s Stock?

With shares of Intel (NASDAQ:INTC) trading around $27, is INTC an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Intel designs and manufactures integrated digital technology platforms, including microprocessors and chipsets. The company sells these platforms primarily to original equipment manufacturers, original design manufacturers, and industrial and communications equipment manufacturers in the computing and communications industries. Intel’s platforms are used in a range of applications such as personal computers, data centers, tablets, smartphones, automobiles, automated factory systems, and medical devices.

A little while ago, there was a lot of speculation that Intel was going to be in the next Nexus tablet from Google (NASDAQ:GOOG) (NASDAQ:GOOGL). First “official” speculation that Intel would win this design came from Digitimes in early January 2014. The reasoning here makes quite a bit of sense since ASUSTek, the company that designed the prior two Nexus tablets, has now more or less gone to Intel for all tablet silicon. According to a leak over at site MyDrivers, the next generation Nexus 8 will sport a Qualcomm (NASDAQ:QCOM) applications processor and run Android 4.5. The most interesting tidbit surrounding this leak, however, is that the applications processor will be 64-bit capable. If we take a look at Qualcomm’s chip portfolio, we see that only the Snapdragon 410 (which is a low-end, low-cost smartphone chip targeted) will be available to fit particular bill during the Q3 timeframe. The Snapdragon 610/615 will pack a bit more “oomph,” and would be the logical successors to the Snapdragon 600-esque (it is Snapdragon S4 Pro’s CPU with Snapdragon 600′s graphics block) chip found inside of the 2013 edition of the Nexus 7. But Qualcomm has indicated that these parts will be available “by the end of 2014,” putting them out of the running. The higher end Snapdragon 808/810 parts won’t be available until 2015, so those are out too.

T = Technicals on the Stock Chart Are Strong

Intel stock has been moving higher over the last couple of months. The stock is currently trading near all time highs and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Intel is trading above its rising key averages which signal neutral to bullish price action in the near-term.

INTC

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Intel options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Intel options

20.94%

96%

94%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Intel’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Intel look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-5.00%

5.33%

48.72%

-27.78%

Revenue Growth (Y-O-Y)

1.43%

2.60%

5.47%

-5.11%

Earnings Reaction

0.59%

-2.59%

1.32%

-3.76%

Intel has seen mixed earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Intel’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Intel stock done relative to its peers, AMD (NYSE:AMD), NVIDIA (NASDAQ:NVDA), Texas Instruments (NASDAQ:TXN), and sector?

Intel

AMD

NVIDIA

Texas Instruments

Sector

Year-to-Date Return

7.40%

9.69%

21.19%

9.70%

12.99%

Intel has been a poor relative performer, year-to-date.

Conclusion

Intel is a developer of technology products such as microprocessors, chipsets, and software, and distributes them to companies and consumers around the world. Qualcomm has largely shut Intel out of the mobile market. The stock has been moving higher over the last couple of months and is currently trading near all time highs. Over the last four quarters, earnings have been mixed while revenues have been increasing, which has produced conflicting feelings among investors. Relative to its peers and sector, Intel has been a poor year-to-date performer. WAIT AND SEE what Intel does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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