Is Intel (INTC, $24.59) Breaking Out?

Posted: Oct 25, 2011 12:01 AM

Like a lot of stock during this market rally, Intel seems poised to breakout of an old narrow pattern trading range.

Intel Corporation (INTC, $24.59) is the world’s largest semiconductor chip maker.

“Intel has the best competitive position in our semiconductor coverage universe, a solid balance sheet, and strong free cash flows, while carrying lower business and financial risks than most other chipmakers, in our opinion. Although we think that the company will continue to thrive in the PC and server segments, we expect INTC’s limited share in fast-growing portable markets to limit top-line advances. Despite what we see as soft consumer PC demand and our cautious stance on the potential success of Ultrabooks, enterprise orders as well as emerging markets remain strong.” — Standard & Poor’s Research, Oct. 22, 2011

Annual revenues were stagnant at around $36 billion per year during fiscal years 2006 through 2009, and earnings per share (EPS) were stuck near $1.00. Intel’s 2010 revenues and net income launched upward from that base, and 2011 looks like another good year of growth. Consensus projections show Intel’s EPS growth rate to be 30% from fiscal year 2010 through fiscal 2013.  The dividend yield is 3.5%.

“Given INTC typically rises in 4Q11 (11 of last 15 years), we think the shares can move higher in such an environment. It will likely be a two-step forward, one-stepback pattern, but given Intel’s increased buyback and above-market dividend yield, we believe downside is limited. We are raising our target price to $27.50.” — Citi Investment Research and Analysis, Oct. 19, 2011

One Year Chart INTC

Intel Corporation Stock Chart

Intel Corporation Stock Chart by YCharts

Intel’s high price during the last ten years was $35.15 in 2002.  Since then, it’s had huge price swings more conducive to trading than a long-term hold.

The good news is that the stock price range has narrowed over the last two years, trading roughly $18 – $24.  A narrowing of a trading range is often a good sign that a stock is getting ready to break out, and I would agree that seems imminent with Intel. The next point of resistance is at $27, where it last traded Dec. 2007.

If I were a trader, I’d put in a buy at $23 and hope that the stock revisits that price before its next upswing; then put in a sell at $26.75.

If I were an investor looking to buy Intel, I’d put in a buy at $23, or just buy the stock outright. The problem is that there’s a lot of resistance at $27, and I might spend a lot of time watching my stock get stuck there before moving higher.

If I owned the stock and was tired of not making any progress, and just wanted to move on, I’d hold on a little bit longer, because I think that $27 is a very realistic near-term price target.  At that point I’d sell and get a fresh start by buying something else with current momentum.

Crista Huff, Goodfellow, LLC