Admittedly, that headline is very much short-termism. It’s borderline difficult to write about Intel (NASDAQ:INTC), a company with enviable market position and a slew of quality traits, however, short-termism is the order of the day in the current environment set by the novel coronavirus.
The “buy the dip” mentality that has been so pervasive over the course of the bull market since 2009 has been dealt a serious blow due to the COVID-19 outbreak. Specific to Intel stock, under previous buy the dip regimes, it may have been a 5% or 7% pullback that would have been enough to lure investors to the semiconductor giant.
These days, we’re talking about INTC being lower by 11.12% for the week ending Feb. 26. Intel stock corrected by a nearly 14% retreat from its 52-week high. Weakness in Intel and other chip stocks is easily sourced to the coronavirus. These companies have dual dependence on China as a production outlet and as a primary end market.
“The coronavirus outbreak has resulted in weakening demand and supply chain disruptions in China’s manufacturing sectors of components, consumer electronics and consumer durables,” said Moody’s Investors Service in a note out Wednesday.
Time to be Cautious
As noted above, the COVID-19 outbreak is hampering an array of technology companies with Apple (NASDAQ:AAPL) being a prime example of that trend. To be fair to Intel, there are plenty of other chip offenders.
Enter Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA), just to name a pair. Additionally, the PHLX Semiconductor Index has performed slightly worse than Intel over the past week. These are anecdotes, but they could add up to something frightening for investors over the near-term.
“While there has been a lot of attention on the supply chain disruptions associated with COVID-19, we think that many investors, and companies, may have underestimated the risk of the current issues impacting end market demand,” said Instinet analyst David Wong in a note out earlier this week. “We remain cautious on the chip industry overall and selective in our chip and chip equipment stock picks.”
For better or worse, sometimes things are very simple in investing. It’s market participants that make things difficult. What I mean is, as long as the coronavirus is a headline-grabber, investors are likely to endure some challenging news flow from the likes of Apple and Microsoft (NASDAQ:MSFT), both of which have withdrawn recently issued guidance.
And if companies such as Apple and Microsoft are pulling forecasts due to the virus, this is particularly ominous for Intel and other semiconductor names.
Last month, Intel said it expected to earn $1.30 a share on sales of $19 billion in the current quarter. That forecast was released on Jan. 23, before coronavirus attained “epidemic status.” No, Intel has not altered that guidance yet, but it would not be surprising if that happened. Assuming the company pulls those projections, the stock would likely be pressured, creating a better buying opportunity than is currently available.
Bottom Line on Intel Stock
It seems somewhat paradoxical to acknowledge the possibility that Intel could suffer a near-term earnings pinch while lauding the company’s still-appealing fundamentals. Both, however, can be true. The latter point certainly is and it’s noteworthy that the company’s 2nd Gen Intel Xeon Scalable processor is taking the fight to AMD on costs.
Additionally, the company recently unveiled new products that cement its perch in the fast-growing 5G space, confirming Intel stock is one of the better ways to play this theme.
Those are catalysts for the long run. Right now investors can wait on better pricing before getting involved with Intel stock.
As of this writing, Todd Shriber did not own any of the aforementioned securities. He has been an InvestorPlace contributor since 2014.