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Intel Stock May Have Hit Rock Bottom. How to Position for a Rally.

Posted November 30, 2020 at 11:30 am
Steven M. Sears

For all of Intel’s incredible contributions to computing, the stock is poised to end the year about where it began—but in a worse place.

Intel (ticker: INTC) is now viewed by many investors as having fallen behind rivals, and it draws unfavorable comparisons to Advanced Micro Devices (AMD) and Nvidia (NVDA). Apple (AAPL), which has long used Intel chips in its computers, recently announced that three of its new computers would use Apple-designed chips, a move that seems symbolic of Intel’s decline.

Making matters worse, the stock—now trading at $47.05—is likely to soon come under end-of-year tax-selling pressure. Investors should note that a window is soon closing that can be used to lower its cost basis and even change its risk dynamics.

Without doubt, Intel remains deep in the wilderness. It recently reported underwhelming in-line third-quarter resultsRick Schafer, an Oppenheimer analyst, essentially told his clients that they should not expect much from the company.

“Multiple structural challenges keep us sidelined,” he wrote in a research note.

At the start of the year, the mood wasn’t so bleak. In January, the company reported strong fourth-quarter earnings of $1.52 per share, which exceeded the $1.25 consensus estimate. Revenue of $20.2 billion beat expectations by $1 billion.

A Deutsche Bank analyst reiterated a $72 price target and said that Intel’s guidance, which was cautious at the time, might be too conservative. Other analysts were more nuanced, but most investors focus on bright, shiny news more than on risk factors.

Intel was once one of the most exciting companies anywhere. The company’s chips were seemingly in every device that was changing how we interact with the world. But that was a long time ago. Intel’s stock performance tells the rest of the story.

In some ways, the saga is reminiscent of what was once said about Microsoft (MSFT) before new CEO Satya Nadella remade the company. Few could imagine it was possible to turn around such a large, complex organization, but it was remade, and the stock has thrived ever since.

Similarly, new eyes—and a significant adjustment to the company’s decades-long manufacturing strategy for its most advanced chips—could reinvigorate Intel. Regardless, the stock pays a healthy dividend and is far cheaper than its rivals.

During the past 52 weeks, Intel stock has ranged from $43.61 to $69.29. The peak was realized early in the year on the heels of the strong January earnings report and before the Covid-19 pandemic changed everything. Intel’s stock is down 24% this year, and 22% over the previous 52 weeks.

There is much to be said for selling a poorly performing stock and realizing a loss, but it’s one of the hardest decisions investors face—so they often don’t face it. Most people are optimists who hate to lose money.

But there is another way forward, the “double up” strategy that lets investors keep their stock and position for a rebound at more favorable prices. It entails buying the same amount of stock as one already owns, waiting 31 days, and then selling the original position that was bought at a higher price, thereby lowering the cost basis.

The holding period is critical. The wash-sale rule holds that you cannot sell a security and claim a tax loss if the position is replaced within 30 days. Nov. 30 is thus the last day in 2020 to use the strategy.

By using a call option to double up, an investor can risk less cash on what was a losing position while waiting for a rebound. (Calls give a holder the right to purchase a security at a set time and price.)

Michael Schwartz, Oppenheimer’s chief options strategist, has counseled clients who own Intel stock to double up with Intel’s January $47.50 calls that expire in 2022. If the stock is at $70 at expiration, the calls are worth $22.50. If the stock keeps declining, the trade fails, but less money would be lost than by buying the stock outright.

Originally Posted on November 27, 2020 – Intel Stock May Have Hit Rock Bottom. How to Position for a Rally.

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