Can Intel Stock Head Higher?

Microchip

With shares of Intel (NASDAQ:INTC) trading around $23, 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.

The company also develops and sells software and services primarily focused on security and technology integration. Microprocessors, chipsets, and software products and services are at the root of most technological progress. A bellwether and main provider like Intel will see rising demand and increased market share, as it is the only viable option for a growing consumer base and expanding companies worldwide.

Intel’s second quarter earnings fell short of analyst expectations. The world’s largest chip maker blamed both a slump in PC sales and economic weakness in China as reasons for the disappointing results. Intel’s second quarter revenue was also down from the mean analyst estimate compiled by Reuters, and the company cut its earnings forecast for the current quarter.

T = Technicals on the Stock Chart are Mixed

Intel stock has been fairly stagnant over the last several years. The stock is now trading near the center of a range extending back to the early 2000s. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are 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 between its key averages, which signal neutral 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

25.47%

0%

0%

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

Put IV Skew

Call IV Skew

August Options

Steep

Average

September Options

Steep

Average

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

On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for Intel’s stock.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. The last four quarterly earnings announcement reactions can also 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?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-27.78%

-24.53%

-24.40%

-10.77%

Revenue Growth (Y-O-Y)

-5.11%

-2.53%

-2.95%

-5.45%

Earnings Reaction

-3.87%*

0.04%

-6.30%

-2.50%

Intel has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have not been too happy about Intel’s recent earnings announcements.

* As of this writing

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 the overall sector?

Intel

AMD

Nvidia

Texas Instruments

Sector

Year-to-Date Return

12.44%

83.54%

18.35%

22.08%

20.46%

Intel has been a weak 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. A recent earnings report left investors unhappy with the company’s performance. The stock has not done very well over the last few years, and is now trading near the middle of a range that extends back several years. Over the last four quarters, investors in the company have not been too thrilled by declining earnings and revenue figures. Relative to its peers and sector, Intel has been a poor year-to-date performer. WAIT AND SEE what Intel does in coming quarters.

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