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Tickers in this Article: INTC, DELL, AMD, LOW, HD
Technology is improving every day. From the televisions we watch, to the phones we use, to the computers we send email on. It's just amazing to think of the inventions that were created over the past two decades, and what the next few may hold in store for us.

My point is this: Technology stocks, more specifically semiconductor stocks, are on the ropes, but they won't stay there forever. In fact, going forward they will be an integral part of technological advancement. Bank on it. Here is my current take on the two biggest chip makers:

Intel (INTC): Wall Street, rightfully so, views Intel as the 800-pound gorilla of the industry. They are innovators, and I would argue that most Americans, whether they know it or not, use Intel chips in some gadget or another almost every day. So, I like the stock for the long haul. Let there be no doubt.

At the present, however, they are taking it on the chin, as PC makers such as Dell (DELL) are reporting sluggish sales in Europe, Japan and America.

This, combined with a reduction in prices (specifically on its Pentium D and Pentium 4 line) made in order to gain back market share from its chief rival AMD (AMD), are a short-term recipe for disaster. Okay, maybe not disaster, but it will crimp the company's bottom line.

Analysts figure the company will earn 80 cents per share in 2006 and $1.05 in 2007. That's a decent growth rate, but that's not too impressive for a $17 stock. Plus, given the weakness in the PC market and AMD's efforts to continue to capture market share, I really question the 2007 estimate. My gut tells me that those numbers are going to get pulled down by management by year's end.

From a qualitative perspective, I also question why Intel execs are selling the stock. In fact, over the past six months, officers of the company have unloaded more then 2 million shares (mostly option related). Why are they selling at the yearly lows? And if they are selling, why should we be buying now? It is a question that all investors should answer before they bargain hunt and try to buy in.

My instincts tell me that there will be a bunch of tax loss selling near year-end as funds and individuals bail. This, combined with any ratcheting down of estimates could provide investors with a nice opportunity down the line.

Again, I like Intel. It has roughly $7 billion in cash on its balance sheet, minimal debt, is well financed, and appears to be able to grow without tapping the equity markets. I am also very impressed with their continued ability to roll out new products including Woodcrest, a server-oriented processor that's getting some good reviews.

But again, timing is they key to owning this stock. Be patient.

AMD: AMD reminds me of Lowe's (LOW), and its pursuit of its larger rival Home Depot (HD). Like Lowes, nobody figured AMD would last, but they have. In fact, they've prospered. And, they have been stealing market share from Intel. Plus, the analyst community likes these folks. They go head to head with Intel, and their technology in many instances is as good or better then the 800-pound gorilla in my opinion.

But make no mistake. Although the company has managed to hold its own, it is still susceptible to the macro environment for PCs and related gadgetry. And that near term outlook is not good. Companies and individuals aren't spending like they used to, and slowing interest rates may exacerbate that. Plus, remember we are coming to years-end. Some companies will, by nature, hold off on making major purchases (for computers/servers etc) until next year. This in turn will have a trickle down effect on AMD.

One thing that did catch my eye though is the recent insider activity. While many execs have sold shares over the last six months, I did see one big purchase. Morton Topfer, a director and former vice chairman at Dell, bought 100,000 shares at an average price of $18.23 back in July, raising his holdings to 150,000 shares.


Now frankly, I think he bought a bit too early, and that the shares are more likely to go down in the near term then up. But seriously that is a big amount. And while insiders may sell stock for many reasons, there is usually only one reason they buy. To make money! So I view this is a terrific vote of confidence in the longer-term prospects of the company.

The company sports about $5 cash per share on its balance sheet, and has minimal debt, like Intel. It is also expected to grow its earnings from $1.10 a share in 2006 to $1.28 per share in 2007. But like the situation at Intel, I think that 2007 is a bit too rich. I also think that tax loss selling could pull this stock down a bit further in the coming months.

Put simply, I like Intel and AMD. I think the pie is big enough for both players to operate. It's just that I don't see any near term catalyst for these stocks. So I am warning against bargain hunting at this point. Again, I think that these stocks should have a great run over the next three to five years. But, I would wait for a more opportune entry point before committing any funds.

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