Is Intel a good investment?

I have been downsizing my AMD positions because, as I explained before, when a technology company is in dire straits, it is in a reactive position that makes it so much easier to manipulate the stock price. I don't like to be at the end of the line of important information.

Anyway, what I did with the money was to put it in other companies such as Intel. A mistake. I had a nice moderate bearish bias in my portfolio 'cos I was bearish on AMD, my main investment. I lost that bearish bias 'cos I haven't found good candidates to take bearish positions on, so, I turned bullish the market just before the market crashed, and Intel has done horribly wrong lately, so, I am really "hurt".

"Year to date", AMD is down 20%, Intc 15%, the Nasdaq 10% and the Dow Jones 5%, approximately. So, the talk of recession has really hurt Intel, but is Intel really vulnerable?

Intel has just gotten rid of a major competitor that put a clamp on profits, the worst (for Intel) of having Chimpzilla doing great products like the Athlon 64 X2 that force you to compete with gigantic cache memories in your Netburst lineup, is not that you lose market share itself, there isn't much difference between 85% or 70%, the real difference is that you lose monopoly status, and to prevent or recover lost market share you must lower prices. Since the attack was all across the board, the profit cuts where universal.

I wrote an article that now sounds very silly, but that illustrates this point. In March of 2006 I thought Intel wasn't going to succeed with the price war, and I wrote why. The prediction turned out the opposite because Intel managed to come back in great fashion and in great strides with the Core micro architecture line up, that is, outright superior products. The key are the superior products. Since Intel is at the brink of not having to concern itself with what AMD may do, it is close to once again be free to exploit the market at will, that translates to monopolistic profits.

In another area, Intel has been executing superbly. It succeeded at the challenge of bringing massive amounts of Core products and getting rid of the "Himalayan Mountain" of Netburst inventories, and the new families of products, with the advancements of transistors with metal gates and high dielectric constant field effect insulators so, from the execution point of view, shinning days lay ahead.

Having literally marginalized the competition to the scraps it leaves and being particularly strong in future prospects, product wise, the current Intel stock price is even lower in absolute terms to the price it had in early 2006, before the market fully realized that the K8 micro architecture was vastly superior to anything Intel was offering, thus, to understand the current valuation of Intel one must suppose that The Market thinks the business prospects for Intel are much worse today.

But are they? A significant component of Intel products are not consumers but business, the processors are a practical need that is not elective like, let's say, iPods. Its market is global. Part of its production is in the U.S. and part is outside. While Intel would surely be affected by an U.S. recession, or even a global recession induced by an U.S. recession, all of my analysis indicates that it should track way above the market, because it has more than average advantages and strengths to undergo a recessive period. Since Intel is much below the market in the beginning of this year, in my opinion a contradiction has showed up that I intend to exploit: Intel must not just catch up to the Nasdaq and Dow Jones, it must give better returns (or not as bad). Since there is already a 7%+ difference between Intel and the indexes, the closing of that gap represents more than 3.5% gain potential doing sort of an arbitrage "bearish the market and bullish Intel" in equal amounts.

I also think it is bullshit that the market for semiconductors will track worse than the broad market, yesterday's IBM results are sort of a confirmation. Unfortunately, the market keeps disagreeing with me...