Is Intel Enticing After Recent Headlines?

With shares of Intel (NASDAQ:INTC) trading around $26, 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.

Intel’s main personal-computer processor business is showing signs of improvement after a record industry slump, yet the company’s push to get into faster-growing mobile-phone chips has gone backward. The world’s largest semiconductor maker yesterday reported higher first-quarter sales and forecast revenue that may top analysts’ estimates in the current period, saying the PC market is stabilizing. At the same time, Intel said the phone and tablet chip business posted a quarterly operating loss of more than $900 million as sales plunged 61 percent. While stemming the decline in its largest business, PC processors, is a positive step, the mobile unit’s losses are a setback for Chief Executive Officer Brian Krzanich, who called success in mobile “critical.”

The drag on profit and Intel’s failure to gain traction with phone and tablet customers after years in the market is leading investors to question the company’s future as a mobile-chip designer. “The raw financial analysis would say: you’ve been trying for a long time, you’ve invested internally, you’ve done acquisitions and you still have not been able to make it work,” said Michael Shinnick, a fund manager at Wasatch Advisors Inc., which owns Intel shares. “It just does appear to be a long-term capital drain. There have to be milestones towards profitability.”

T = Technicals on the Stock Chart are Strong

Intel stock has not made significant progress in the last several years. However, the stock is currently surging higher 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

21.16%

37%

34%

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

Put IV Skew

Call IV Skew

May Options

Flat

Average

June 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 minimal 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

0.75%*

-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 been pleased with Intel’s recent earnings announcements.

* As of this writing

P = Excellent 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

3.87%

-2.58%

14.73%

2.55%

5.64%

Intel has been a relative performance leader, 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. The company yesterday reported higher first-quarter sales and forecast revenue that may top analysts’ estimates in the current period. The stock has not made significant progress in the last several years, but is currently surging higher. Over the last four quarters, earnings have been mixed while revenues have been increasing, which has pleased investors. Relative to its peers and sector, Intel has been a year-to-date performance leader. WAIT AND SEE what Intel does this quarter.

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