I’ve been side-tracked on a few other things for the last few weeks so only getting around to posting the 2nd half of my look at how earnings season is going now. Click here to catch up on the first half from a couple of weeks ago. Since then we have had some fairly wild moves in the markets mostly driven by mad goings on in Greece. We’ve seen the Euro fall 6.5% against the dollar on the back of contagion fears that the Greek debt crisis could spread to other European countries, a massive €750 billion bailout agreed, crude oil has fallen $13.00 a barrel on the back of a strengthening dollar and fears of a slowdown in Chinese economic growth, there was last weeks “flash crash” when the DOW dropped 1,000 points in a few minutes before recovering 500 pts and Gold continued to push higher and higher, eventually hitting new all time highs on Tuesday. And though all this excitement the Q1 results continued to trickle in with the vast majority continuing to beat the Streets expectations. Exciting times indeed!
I will look at Greece, Gold and the DOW “flash crash” in future posts but first lets get back to looking at a few of the more popular tech names that reported in the last few weeks and seeing what they had to say for themselves and, more importantly, how has the market reacted to their results. I covered Apple in Part 1 and promised a look at Intel and Google in Part 2. I’m going to break that promise and stretch this one out a bit further by looking at Intel today and Google the next day.
A Trade That Didn’t Work Out!
Before I get into the specifics of Intel’s result I thought I’d share a recent trade that didn’t quite go to plan. When I started Part 1 of this article I had done some initial research on Intel and I remember at the time thinking the chart was setting up really nice for a good entry price. This was back on 29th April, 2 weeks earlier the company had reported amazing earnings that smashed analyst estimates (revenues of $10.3 billion, analyst were expecting $9.8 billion, EPS of 43 cents a share, analysts were expecting 38 cents a share). Profits of $2.4 billion were 288% higher than the $647m reported in Q1 2009! No surprise then that the stock gapped up over 3% on these result and pushed another 3% higher over the next few days before it started to fall back a bit. Having missed the initial jump up I was patiently waiting for another opportunity to go long and felt I had it on April 29th when after a big pull-back the day before Intel closed back above it’s 20 day moving average which had acted as support since early February (see the chart below which shows Intel on 29th April). I also liked how, despite the previous days sell-off, the stock had still managed to close above the gap-up which came the day after the results were announced. I saw this as an ideal opportunity to get long and watch Intel push on to new highs for the year.
Intel Chart From April 29th (Click twice to Enlarge)
Of course in trading things don’t always work to plan and a 3% sell-off the next day saw me promptly stopped out of my position (see 2nd chart below which shows Intel yesterday). Thankfully a tight stop 50 pts below meant my loss was a relatively small one. While never happy with a losing trade on reflection I am still ok with the trade I put on, there was a lot going for it and I had properly defined my risk. Given a similar setup today on Intel or some other stock I was bullish on I’d probably put the same trade on again. Since then the stock first sold off dramatically, all the way down to $19 during last Thursday crash, albeit only for a few minutes, before recovering most of it’s losses to now stand at $22.50, just about where it was before it announced it’s Q1 results.
Intel Chart From May 13th (Click twice to Enlarge)
New Product Cycle And Increased Corporate Spending Is Good News For Intel
So what to do now. Well longer term I’m bullish on Intel. There are a lot of factors driving the most recent set of results which I’d expect to see continue for the rest of this year and into next including:
- Stronger corporate spending driven by the need for hardware and software upgrades after a few yrs of limited spending as the recession forced companies to cut back all non-essential spending.
- Stronger consumer spending on laptops driven by the release of Windows 7
- The move towards cloud computing is creating a new area of demand
- A new wave of netbooks, tablet PCs and mobile devices are furthering the demand for Intel’s chips.
Trading at a forward P/E of approx 11 and with almost $3 a share in cash on it’s balance sheet Intel is not expensive. With full year EPS of close to $2.00 a share expected a move towards a valuation of 15 times earnings could see Intel hit $30 within the next 12 months, a 33% rise from current levels. Shorter term the markets are very volatile at the moment so waiting for things to settle down a bit before going long might be the best option. Assuming we don’t revisit the wild swings seen last Thursday and Friday anytime soon, a long position close to $22 would be a very good entry price with a tight stop around $21.50 to manage risk.
Right I’ll finish off this review of some of the Q1 results with a look at Google over the weekend.
SpreadTrader.ie : -)