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It’s Time to Use the Volatility in Intel Stock to Your Advantage

Josh Enomoto

Intel (NASDAQ:INTC) is having quite a schizophrenic year. At the end of May, Intel stock closed at $54.87 … good for over a 20% gain. To add context, this haul was more than twice that of the benchmark Technology Select Sector SPDR Fund (NYSEARCA:XLK) over the same period.

However, INTC stock from June 1 represents the opposite, dropping nearly 21% in the markets. Worse yet, INTC has accelerated into the bearishness, with its 50-day-moving-average acting as resistance. Ominously, the 50-DMA is about to dip below the longer-term 200-DMA, setting off the ominously titled “death cross.”

If that weren’t enough, Intel stock is badly lagging its chief competitors, namely Advanced Micro Devices (NASDAQ:AMD). After suffering choppy trading in the first few months of the year, AMD has veritably skyrocketed. Since mid-August, shares have actually gone parabolic.

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How did this semiconductor stalwart get things so wrong?

Obviously, we can’t ignore the troubles at the top. Around the time Intel stock initially began melting down, management forced former CEO Brian Krzanich to resign. Krzanich violated the company’s non-fraternization policy when he engaged in a consensual relationship with another Intel employee.

I can sympathize with the negative sentiment. Since the company’s founding in 1968, INTC had only six CEOs. If investors couldn’t rely on market stability, they sure could depend upon consistency in leadership. Not only is that trust gone out the window, Intel is considering outsiders for the top role. Again, this breaks with tradition, unsettling longtime shareholders.

The other issue is more pertinent to Intel stock. Struggling with various production issues, INTC stumbled on its 10-nanometer chips. And as our own James Brumley noted, Intel committed several fumbles that allowed competitors to catch up and dominate.

Intel Stock: Don’t Miss the Forest for the Trees

Although I’m long-term bullish on INTC stock, I’m also realistic. The technical dangers are very real. Like any company experiencing volatility, I’d tread very carefully.

At the same time, I don’t want to let an excessively conservative outlook prevent me from considering genuine contrarian opportunities. I realize it’s a cliché, but I believe the bearishness is becoming overextended.

First, let’s look at practicalities. The flavor of the month is AMD. But at its current price, I’m buying shares at 94-times trailing earnings, and nearly 50-times forward earnings. On the flipside for Intel stock, I’m looking at 16-times and 10.5-times for the previously discussed metrics.

Beyond that, you must also consider Intel’s tremendous financial strengths. For example, INTC has a total cash position that exceeds $12 billion. AMD? In the most recent quarter, it reported less than $1 billion. Moreover, AMD can only spend a little over a billion in research and development. This contrasts sharply with Intel, which spent over $3.3 billion in the second quarter.

I’m not trying to compare the two companies. Rather, I’m saying that it makes more sense to buy fundamentally sound INTC on a discount than speculative AMD on a premium. Additionally, Intel can realistically work its way out of trouble thanks to the financial cushion. You can’t say that about all the tech firm’s competitors.

Plus, I can’t give up on Intel stock, not when the underlying company is proving its worth despite the distractions. As an example, several shareholders dumped out of INTC when it slightly missed the data-center revenue target for Q2. But this overlooks the bigger picture, which shows consistent growth in this segment.

And let’s not forget that with Intel’s financial strengths, it can quickly shore up any weaknesses in data centers.

Bears Are Nitpicking With INTC Stock

I think the markets are focused too intently on old news (Krzanich) and somewhat misleading news (chip delays).

How the nasty CEO situation went down was and is a major distraction. Still, it’s not enough to undo what remains a powerhouse organization.

Yes, the next-generation chip delays stink. But the company isn’t getting bamboozled by its rivals. When INTC is on its game, as it demonstrated with its latest flagship Intel Core i9-9900K, nobody can beat them. That’s why I’m comfortable speaking bullishly about Intel stock, even though it appears troubled.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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