Intel (NASDAQ:INTC), a giant within the almost-$500 billion global semiconductor industry, has recently seen a 52-week high at $59.59. INTC stock is expected to release earnings on April 25, after the close.
I believe that the relatively strong recent performance of the stock has been based on robust fundamentals, which I expect to continue in the rest of the year. With earnings season in full swing, let us look at the catalysts that are likely to provide tailwinds to INTC stock price.
Intel Has Leadership and Robust Fundamentals
In 2018, Intel faced some challenges. At the time, the pain in INTC stock coincided with the sudden resignation of its CEO in June 2018, and Wall Street was not been impressed with how long the process to replace the interim CEO took. Finally in January 2019, the company named Robert Swan as the new CEO.
Its quarterly results released on Jan. 24 showed that Intel missed on revenue and the company gave weak guidance. However, many analysts highlighted that the tech giant was still delivering impressive double-digit growth at around 10% and enjoyed a dominant position in key markets.
Intel’s two largest segments are the client computing group (CCG) and data center group (DCG). Together they contribute almost all of Intel’s operating profits.
CCG includes Intel’s PC and mobile-device chip business. The Central Processing Unit (CPU) is the “compute” in the computer. Intel’s CGC segment makes the CPUs. INTC controls nearly three quarters of the CPU market, and Intel processors are the main component in most of the personal computers and servers globally.
On the other hand, Intel’s DCG segment makes CPUs that are optimized for enterprise-grade hardware, namely for data-center servers. On Apr. 2, the company held its Data-Centric Innovation Day, when it reaffirmed performance leadership in data center products and unveiled its next-gen processors as well as platform technologies.
Intel currently holds a 99% share of the data center server market, which has been a consistent growth driver for the company. In 2014, about a third of Intel’s revenue was data-centric; now it’s half.
Many investors believes that Intel’s technological innovations will increase its ecosystem in diverse growth segments, including artificial intelligence (AI), 5G and autonomous driving (AD). These emerging sectors all require data in enormous quantities and at extremely high speeds.
Although the tech titan is a mature company, Wall Street is seeing further growth opportunities as Intel re-orients itself to rely less on PCs and improves its revenue model to capitalize on the growth of the data business.
Intel Stock Offers Strong Dividend Yield and Share Buyback
On March 14, Intel declared a quarterly common stock dividend of 31.5 cents per share, payable on June 1, 2019, to shareholders of record on May 7, 2019. INTC’s dividend yield is a respectable 2.15%. Only a handful of established technology companies offer investors stable and growing dividends — an important reason why Intel stock belongs to a capital-growth portfolio.
Intel management has also been rewarding investors with share repurchases. In November 2018, the company announced a $15 billion increase in its stock repurchase program — another indication of proactive management that aims to deliver higher stock returns for long-term investors.
Short-Term Technical Analysis
Year-to-date, Intel stock is up over 25%. As a result of the recent impressive run-up in the stock price, short-term technical indicators have become somewhat overextended. Investors who pay attention to short-term oscillators should note that INTC’s technical message has also become “overbought.”
So, following its earnings report, there might be some profit-taking in INTC stock. Furthermore, if the industry or the broader market decline as companies release earnings, the Intel stock price may also be adversely affected. Several of Intel’s competitors include Advanced Micro Devices (NASDAQ:AMD), Qualcomm (NASDAQ:QCOM) and NVIDIA (NASDAQ:NVDA) and as the market reacts to news and numbers from any of these companies as well, Intel’s share price is likely to become choppy, too.
If you already own Intel shares, you might want to hold your position. That said, if you are worried about short-term profit taking, then within the parameters of your portfolio allocation and risk/return profile, you may consider placing a stop loss at about 3%-5% below the current price point, to protect your profits to date.
If you are an experienced investor in the options market, you may also consider using a covered call strategy with approximately a two-month time horizon. In that case, you may, for example, buy 100 shares of INTC at a limit price of $58.82 and, at the same time, sell an INTC June 21 $57.50 call option, which currently trades at $3.
The $57.50 option is slightly in-the-money, offering downside protection in case of volatility and a decline in Intel stock. This call option would stop trading on June 21, 2019, and expire on June 22.
In other words, I would not advocate bottom-picking in case of near-term price weakness. Yet, I find INTC stock to be a compelling buy candidate and by the end of 2020, I’d expect the shares to reach $70.
The Bottom Line on INTC Stock
Intel’s first-quarter earnings release will give Wall Street a chance to analyze the company’s latest results and assess whether the stock’s recent run-up in price can continue the rest of the year.
Investors who are interested in INTC stock but do not want to commit all their capital to a single stock may also consider investing in various exchange-traded funds (ETFs) that have Intel as a holding. Examples of such funds include the VanEck Vectors Semiconductor ETF (NYSEARCA:SMH), the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) or the Invesco Dynamic Semiconductors ETF (NYSEARCA:PSI).
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
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