Why Intel's Stock May See a Massive Rebound

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Intel Corp.'s (INTC) stock hasn't had a fabulous 2018. Shares are in bear market territory and down by more than 20% from their June highs. But technical analysis suggests the stock may be due to increase by as much as 12%.

And that's not all. Despite the steep stock declines, analysts’ views on the company remain strong. Since the chipmaker last reported results in July, analysts have been raising their estimates for the company. It comes in stark contrast to the declining stock, helping to push Intel's valuation to the lowest levels in years. (For more, see also: Avoid Intel Stock Despite Steep Decline.)

INTC Chart

INTC data by YCharts

Technical Turnaround

The stock has been in a multi-month technical downtrend since peaking in mid-June. Should shares rise above that downtrend, it is possible for the stock to climb as high as $51, an increase of 12% from the current price of $45.50. The downtrend is part of a bullish technical pattern suggesting shares rise called a falling wedge.

Momentum Shifting

The relative strength index (RSI) also suggests the stock will reverse from its current downtrend and begin to rise. The RSI has hit oversold levels, falling below 30 four times since the end of June. Despite the stock price making a series of lower lows, the RSI has remained steady. It is a bullish divergence and a sign the trend in Intel’s stock price is likely to turn higher in the coming weeks.

Bullish Analysts

Analysts have bullish views on Intel's business over the next three years. The 2018 earnings are forecast to grow by 20% to $4.16, up from a prior forecast of $4.01 in early July. Meanwhile, 2019 earnings forecasts rise by 2.5% to $4.25. But trouble starts in 2020, with estimates falling by 1% to $4.50.

The revenue outlook improves too, forecasting growth of almost 11% in 2018 to $69.6 billion from previous estimates of $68.4 billion. The 2019 revenue estimates rise by 2% to $71.6 billion, while 2020 estimates increase by less than 1% to $74.6 billion. (For more, see also: Intel a 'Top pick' Despite Poor Sentiment: Citi.)

Cheapest in Years

Fundamental Chart Chart

Fundamental Chart data by YCharts

The upward earnings revisions in 2019 and falling stock price has pushed Intel's 2019 price-to-earnings ratio to its lowest level since 2015 at 10.7. Since 2015, the PE ratio has stayed in a range of 10.8 to 14.7.

Intel's shares are either presenting investors with an incredible opportunity; or, investors currently selling the stock and pushing the price lower aren't as optimistic as the analysts about the future of the business. We will soon find out.

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 holdingsInformation 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. 

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