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Why Intel Stock Should Be in Everyone’s Portfolio — Even Now

Nicolas Chahine

Technology touches almost every aspect of our lives and this trend is accelerating exponentially. Thanks to the advent of the cloud, this is likely to continue for decades to come. Businesses and governments are completely committed to the migration to the electronic world.

Intel (NASDAQ:INTC) is one of the suppliers to the brains of all tech. So it will have sustainable strong demand for their products and services. They have been leaders since the early days of computers. I remember getting excited about upgrading from 286 to 386 chips. Now we carry powerful computers in our pockets. Instead of IBM or Apple (NASDAQ:AAPL) computer wars, we have iOs versus Android.

Now INTC it has competition from Nvidia (NASDAQ:NVDA) and long-time rival Advanced Micro Devices (NASDAQ:AMD), but it still remains a leader. However, INTC management is in limbo since they are still seeking a permanent CEO. But the bench is deep enough to keep the company executing on plans already in motion.

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This year, AMD is the Wall Street darling of the group even though it has the shakiest fundamentals on paper. NVDA is the fallen angel. It was the chosen one until October, and then a disaster November earnings report knocked off its perch.

INTC stock sits in the middle with a -1% year-to-date performance which is much lower than AMD’s 63% but folds better than NVDA’s -33% for the same period. Yesterday, they all soared on absolutely no specific news.

INTC is a stock to own for decades to come. But it is hard to chase any stock the day after it was up 6% like it was on Wednesday. But this comes after a 24% correction from the July highs so this hard bounce is not a deal breaker. The fall from grace was not stock-specific, the VanEck Vectors Semiconductor ETF (NYSEARCA:SMH) is down 15% year-to-date.

So there will be more upside for INTC in the future even though a good bit of the immediate upside has already been had. Intel survived the dot-com boom and the 2008 crisis. This is a proven management structure and a long-term hold in any diversified portfolio. INTC will shrug the current headline threats.

Short term, I expect the indices to fade and perhaps even set new lows this year. But if and when that happens it would be an opportunity to reload or add to quality stocks. Long term, if equity markets are higher then Intel stock is definitely higher. So buying it soon may not be the absolute bottom, but it will be a great start.

Trading INTC Stock

Since there are still so many looming macroeconomic and geopolitical headlines, I would not take a full position in INTC all at once. This way I leave room to add more if it goes even lower.

Fundamentally, INTC is cheap as it sells at a 10 trailing 12 months price-to-earnings ratio. Cheap can get cheaper but owning it down here is not likely to be a colossal mistake in the long run. Compare that to AMD that still loses money, and NVDA sells at a 18 P/E.

Technically, the clearest entry point into INTC stock was in October of 2017 when it breached a monthly upside bullish pattern that targeted the 2018 highs. Now and after the correction it started testing that same neckline zone from which they sprang last year. The bulls still have room to $38 per share and still maintain the long-term upper hand.

The chip sector is in the direct line of the tariff war fire fight. So the next 90 days will likely be tumultuous and I expect that my resolve will be tested. To mitigate some of the INTC C-suite risk I can split my longs between it and the SMH ETF. This way I can still participate in the chip sector’s upside potential while hedging my stock-specific risk.

Furthermore, we may not have heard the last of the feud between President Trump and Fed Chair Jerome Powell. Equity markets do not like to see skirmishes between the U.S. Chief in Charge and the leader of its monetary affairs. Short-term caution is still advised.

Click here for more of my market thesis and get an ongoing free copy of my weekly newsletters. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.

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