(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
The month of October has been brutal for the broader stock market, especially the chip sector. The iShares PHLX Semiconductor ETF (SOXX) is down 12%. One stock that has bucked that trend is Intel Corp. (INTC), which is up 4% this month, fueled by its recent better than expected earnings report. Now, technical analysis suggests the stock may rise another 9% from its current price of $48.25. Options traders also are betting the stock will rise.
A Break Out
The chart shows the stock breaking out and rising above technical resistance at $47.70, clearing a path to climb as high as $52.50. Another positive indicator: the shares are breaking out from a technical pattern known as falling wedge, which is a bullish reversal pattern.
Additionally, the relative strength index has now turned positive and is rising sharply.
As indicated, options trades due to expire on January 18 are bullish. The call options at the $49 strike price heavily outweigh the put contracts by a ratio of 12 to 1 with nearly 25,000 open call contracts. Open call contracts at the $50 strike price are even more aggressive. A buyer of those calls would need the stock price to rise to $51.75, an increase of 7.5%.
These technical and options indicators reflect the company's strong second quarter results. Earnings exceeded estimates by 22% while revenue was 6% higher than estimates. That has prompted analysts to boost fourth quarter earnings estimates by 12% and revenue estimates by 3%. Full-year earnings and revenue estimates also have soared.
Intel, however, faces a major slowdown in 2019. Analysts forecast flat earnings growth on a meager 3% gain in revenue.
The lack of growth in 2019 may prove to be the biggest headwind for the stock, a reminder of why Intel shares remain 16% off their highs despite the recent uptick. That means Intel's growth outlook for next year may have to improve sharply to keep its current stock rebound going.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.