One could make the case that this is the riskiest period for stocks, certainly since the late-1960s/early-1970s bear market, and perhaps longer. The U.S. and global economies are in recession. International trade will likely decline substantially in 2009. And so far, the world hasn't identified which growth engines will replace the U.S. consumer, now the frugal U.S. consumer. This kind of environment sends most investors to the sidelines, but that doesn't mean there aren't bargains to be had for investors who can tolerate moderate risk -- and Intel (NASDAQ: INTC) is one.
Don't expect a great deal from Intel in the first half of 2009, and most likely through at least Q3. Further, for the full year revenue will likely decline by more than 15%, hurt by a decrease in personal computer sales, globally. The First Call F2009/F2010 EPS estimates for Intel are 42 cents/80 cents.
So what's the rationale for Intel? New technology: Intel's new and to-be-released microprocessors will again outperform the field, its balance sheet is strong, its new market opportunities remain promising, and the company's graphics-oriented chips point to revenue surprises to the upsides.
Hence, this is a 'get-ahead-of-the-pack' play that carries above-average risk: Any signs that a U.S. or global recovery is not up ahead as we enter Q4 2009 and Intel's stock could easily revisit yearly lows at $12 per share. Still, assuming markets will be intact down the road, the view from here argues the risk/return is favorable with Intel.
Stock Analysis: Intel is a moderate-risk stock. Intel is an investment, not a trade. Consider buying a 25% position in Intel now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your INTC position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $8.50.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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