Is Intel a Safe Investment?

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 just purchased Ginger Software’s personal assistant division, launching speculation that the company will have a “Ginger” to Apple’s (NASDAQ:AAPL) Siri (NASDAQ:SIRI) and Microsoft’s (NASDAQ:MSFT) Cortana. The news broke on Hebrew language technology website Calcalist on Friday. While Intel is typically known for its computer and microprocessor chips that are used in a wide variety of devices, the company also produces a number of computer components, including motherboards, Ethernet cables, and software. Many components made by Intel are used in other devices. Companies ranging from Apple to Acer use Intel’s chips in their products. Aside from its usual array of products, the company also is reportedly working on an artificial intelligence headset. The so-called Jarvis headset is a Bluetooth-enabled device that would work both on and offline. It was initially unveiled at the Consumer Electronics Show in January as a Bluetooth headset. Intel reportedly wants it to make it a rival to both Apple’s Siri and the Google (NASDAQ:GOOG) Glass device.

Ginger’s technology could be applied to an artificial intelligence product since it has the potential to provide software that could be used in the headset. The purchase of Ginger’s personal assistant division includes natural language processing software. Some speculate that it will be applied to Intel’s virtual reality project. Up to 16 people employed by Ginger may be joining Intel as a result of the deal, but no clear number has been given yet. An Intel spokesperson told TechCrunch only that the deal occurred and what it entailed. How exactly Intel will utilize the technology and staff it will acquire has not been disclosed by either company. “On May 8, Intel acquired natural language processing tools and applications assets from Ginger Software, and it is hiring up to 16 engineers associated with this business,” the spokesperson said to the publication. “We are not disclosing details about how Intel might use the Ginger Software technologies at this time and we are not disclosing terms of the deal.” Intel is also not disclosing how much the deal cost. The Inquirer reports the figure may be $30 million.

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 highs for the year 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

14.19%

6%

4%

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

Put IV Skew

Call IV Skew

June Options

Flat

Average

July 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 small 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 been pleased with 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

1.85%

2.71%

15.98%

7.04%

7.89%

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. The company just purchased Ginger Software’s personal assistant division. The stock has been moving higher over the last couple of months and is currently trading near highs for the year. 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 poor year-to-date performer. WAIT AND SEE what Intel does this quarter.

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