If you have followed me long, you would have noticed I normally don’t recommend out of favor deep value stock because A. I don’t believe that the market offers such juicy opportunities and there is a reason why stocks trade at certain levels and B. The Value is more in a stock that’s in a strong uptrend.
The Case Study of Intel versus AMD
Hmm…not a great thing to do 🤦♂️
Alaska Department of Revenue sold AMD and bought Intel.
— Deepak Singh (@smarket) July 13, 2020
I can never recommend this. The reason I am sharing this: It gets very tempting to pick up a down and out stock and ignore a stock that’s making the big move. I never recommended Intel this year despite being down and out stock and just see what it has done over the last six months
I did recommend AMD in the month of June and early July when it was trading near $50-$54 band. The stock has not disappointed and continued eating Intel market share. The stock is up 60% in less than six months 🙂
It is not the Value investing but trend investing that works in the market and deliver a good outcome. But people who look at the market from a theoretical perspective fall for it.
Intel is cheap on the Valuation front trading at 11 times next year earnings but nobody seems to be interested in the stock while AMD and NVidia continue to attract buying at insane valuations. Why?
Because investors see Intel as a company in trouble. It’s losing market share pic.twitter.com/pUwUyTZm72
— Deepak Singh (@smarket) September 15, 2020
What good is Value Investing for?
There are times when the market factors in too much pessimism in the stock that it appears ridiculous. I call it Ultimate Pessimism. Every bad thing gets factored into the stock that the downside from that level looks improbable unless the company goes out of business. Is Intel standing at such levels right now?
Intel stock is trading at levels which it has not breached over the last many years. On Valuations, the stock is trading at 10 times forward earnings with a dividend yield of 2.89%. One can assume that whoever had to panic has panicked on this stock. But remember, if you buy at current levels, your downside might be protected, no guarantee but there is no spark for sustained upside. It means the stock can test your patience and even though price damage might not happen but the time correction can continue.
Should you buy Intel at the current level of 45?
Yes if you are prepared for the long haul and believe that this company will turnaround. Remember lots of people invested in IBM with the same premise and suffered big time. So, you never know. This stock does not fit in with my style of investing but I am sharing this because I keep getting requests for how to invest in stocks like these.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers
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