Many clients this week have asked us to take a look at Intel (INTC).
Well that makes sense as they have been back in the news after
convincingly breaking out of a multi-year consolidation. After most
analysts here have seen it as dead money and lagging other chipmakers
but now all of a sudden things are finally looking up.
This just goes to show you how much a price rally lifts sentiment.
Even the most ugly start to look rosy once more. Could it even confirm
some underlying fundamental improvement? As one analyst puts it:
Intel is improving its fundamentals, which is becoming increasingly evident when one looks at the performance of its shares.
OK we can accept that but we can’t always equate price moves with fundamental changes. There could be other factors at work.
Price Drivers
We won’t argue there have been improvements in Intel’s outlook. Interesting acquisitions, potential partnerships and some top line growth has helped. Things are certainly looking better.
But I am worried the recent rally has less to do with what we see in the charts.
Fundamentals
We started looking for find cracks in Intel’s last few earnings. When we see a hyped up stock and lots of people getting bullish especially after a substantial rally, we become skeptical and look for reasons to be contrarian.
We do have to admit that Intel has posted a very solid Q1 and Q2. Their the restructuring seems to have worked, revenue is growing and margins are improving. There are concerns that competition from Advanced Micro Devices (AMD) would trouble Intel, we would say that those concerns seem to be misplaced.
The 2017 price action in both stocks is quite interesting. They have traded heavily within a range, but with almost opposite directions before and after earnings (labeled “E” in the chart below).
Importantly, the last earnings ignited a breakout rally in Intel while there was no rally in AMD.
The chart also shows how often the pre-earnings move fades, irrespective of the direction of the lead in. With the next Intel earnings in around two weeks’ time, it is worth buying short-term.
Yes earnings are impressive but what we find strange is the timing of the rally. Intel posted earnings in late July and in April, and yet the rally didn’t get going until September. Is there something else at work here?
Intel is improving its fundamentals, which is becoming increasingly evident when one looks at the performance of its shares.
OK we can accept that but we can’t always equate price moves with fundamental changes. There could be other factors at work.
Price Drivers
We won’t argue there have been improvements in Intel’s outlook. Interesting acquisitions, potential partnerships and some top line growth has helped. Things are certainly looking better.
But I am worried the recent rally has less to do with what we see in the charts.
Fundamentals
We started looking for find cracks in Intel’s last few earnings. When we see a hyped up stock and lots of people getting bullish especially after a substantial rally, we become skeptical and look for reasons to be contrarian.
We do have to admit that Intel has posted a very solid Q1 and Q2. Their the restructuring seems to have worked, revenue is growing and margins are improving. There are concerns that competition from Advanced Micro Devices (AMD) would trouble Intel, we would say that those concerns seem to be misplaced.
The 2017 price action in both stocks is quite interesting. They have traded heavily within a range, but with almost opposite directions before and after earnings (labeled “E” in the chart below).
Importantly, the last earnings ignited a breakout rally in Intel while there was no rally in AMD.
The chart also shows how often the pre-earnings move fades, irrespective of the direction of the lead in. With the next Intel earnings in around two weeks’ time, it is worth buying short-term.
Yes earnings are impressive but what we find strange is the timing of the rally. Intel posted earnings in late July and in April, and yet the rally didn’t get going until September. Is there something else at work here?
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