“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, September 03, 2018

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

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Option Trade – Advanced Micro Devices, Inc. (NASDAQ:AMD) Calls

 Thursday, September 06, 2018

** OPTION TRADE: Buy the AMD NOV 16 2018 30.000 CALL at approximately $2.80. Place a pre-determined sell at $5.60.

Also include a protective stop loss of $1.10.

Advanced Micro Devices, Inc. (NASDAQ:AMD), a global semiconductor company, has seen its shares rally on bullish notes from Jefferies analyst Mark Lipacis as well as Cowen bulls.

The stock soared 11 percent on Tuesday following the bullish notes from Wall Street analysts. AMD is now up 173 percent and is the S&P 500's top technology stock in 2018. Technical analyst Todd Gordon of TradingAnalysis.com says AMD shares could surge to $30 per share, a level the stock hasn't seen in 12 years.

"This is obviously this chip story stock here; it's in a great technical position, great fundamental story behind it here, and I like it a little bit higher here," Gordon said.

In a note to clients on Monday, Jefferies analyst Mark Lipacis lifted his 12-month price target for AMD shares by 36% from $22 to $30. His new forecast implies a 7% upside from Tuesday's close at $28.06. The analyst estimates that by the second half of 2019, AMD will have a faster chip than Intel for the first time in recent history marking a “foundational shift in competitive dynamics.”

AMD has been viewed as a beneficiary of setbacks faced by Intel in moving to its next-generation 10-nanometer chip technology, which the firm now says is slated for release by the 2019 holiday season. Meanwhile, AMD is expected to release its faster, more power-efficient 7-nanometer server chips next year.

Jefferies lifted its 2019 AMD server chip market share estimate to 12% from 8%.

"Meanwhile, our checks also suggest that AMD continues to take share in high-end notebooks," added Lipacis.

Bulls at Cowen echoed the bullish sentiment on AMD shares, lifting their 12-month price target from $25 to $30 and citing advantages of getting to market with a faster chip before rivals.

"Intel's delayed 10nm roadmap — originally targeted for 2016 launch in client and now pushed to 2H19 — opens opportunities for AMD across the business," wrote Cowen's Matthew D. Ramsay in a report released on Monday.

Performance…..

AMD has seen its stock price skyrocket 1,442% over the last three years, from under $2 per share in August of 2015. Shares of AMD did go through a slow stretch during this time period, but have returned to impressive growth recently. AMD stock was up over 135% before Tuesday's gains over the last six months, which crushes the S&P 500's 7% jump and its industry's 2.4% pop.

Moving Forward…..

Moving on, AMD is currently trading at 50.9X forward 12-month Consensus EPS estimates, which marks an insane premium compared to the S&P's 17.6X and its industry's 12.1X average.

Advanced Micro Devices is scheduled to report its third-quarter earnings in late October. While quarterly numbers are expected to decline slightly, annual numbers are expected to be quite impressive. The company has posted profits in each of the last four quarters and reported its highest quarterly revenue in almost a decade.

Influencing Factors…..

Advanced Micro is providing top-notch products at rather competitive prices.

In addition, Advanced Micro plans to release 7-nanometer chips in 2019. Note that smaller chips are often more powerful than their larger counterparts.

Advanced Micro's shares have been a top performer in the S&P 500 so far this year, which has encouraged investors. Considering the market opportunity and the company's current size, there still seems to be immense potential in the stock. Moreover, the company reported extremely strong revenues in the second quarter. The top line grew 44% year over year to $1.76 billion, above the $1.72 billion predicted by analysts.

In regard to valuation, while Advanced Micro currently floats a forward price-earnings ratio of 46.73, the market scope supports a bull case.

As well, while micro-level factors specific to the company are also playing in the stock's favor, the primary drivers are expected to be deficiencies in the competition. As Advanced Micro's competitors experience issues with their product launches and innovation, it is leveraging the opportunity to capture a higher piece of the market.

Moving Ahead…..

Looking ahead, AMD's quarterly revenues are projected to pop by just under 4% to reach $1.71 billion, based on our current Consensus Estimate. For the full year, AMD's top line is expected to hit $6.69 billion, which would mark a much more impressive 25.5% surge.

At the other end of the income statement, the firm is expected to see its adjusted quarterly earnings jump by 20% to reach $0.12 per share, while its full-year EPS figure is projected to skyrocket 176%.

Analysts and Hedge Funds Opinions

Advanced Micro Devices‘s stock had its “buy” rating restated by equities researchers at Jefferies Financial Group in a research note issued to investors on Tuesday. They currently have a $30.00 target price on the semiconductor manufacturer’s stock. Jefferies Financial Group’s price objective would indicate a potential upside of 5.23% from the company’s previous close. Jefferies Financial Group also issued estimates for Advanced Micro Devices’ Q3 2019 earnings at $0.20 EPS.

The analysts wrote, “We raise our 2019 EPS est and our price target following our meeting with management at our annual Chicago Summit. We have higher conviction that in 2H19, AMD will ship a server MPU with higher transistor density than INTC for the first time in recent history, if not ever. We see this as a foundational shift in competitive dynamics. Meanwhile, our checks also suggest that AMD continues to take share in high-end notebooks. AMD remains a top Tectonic Shift pick. Foundational Shift. For most of the past 12 years, Intel has executed near flawlessly, as AMD often stumbled and lost share. Intel’s manufacturing lead led to smaller, cheaper, lower power and higher performance transistors – making it nearly impossible for AMD to reverse its share loss.””

Summary

Advanced Micro Devices has a market cap of $24.54 billion, a P/E ratio of 74.03, a P/E/G ratio of 8.92 and a beta of 3.16. The company has a debt-to-equity ratio of 1.33, a quick ratio of 1.26 and a current ratio of 1.66. Advanced Micro Devices has a 12-month low of $9.04 and a 12-month high of $29.94.


Option Trade – Intel Corporation (NASDAQ:INTC) Calls

 Thursday, September 06, 2018

** OPTION TRADE: Buy the INTC NOV 16 2018 50.000 CALL at approximately $1.20. Place a pre-determined sell at $2.40.

Also include a protective stop loss of $0.50.

Santa Clara, California based Intel Corporation (NASDAQ:INTC), a designer and manufacturer of digital technology platforms, a large-cap value stock and member of the Dow Jones Industrial Average, has dipped on the stock chart, providing a great opportunity for this options trade.

Shares of the world's largest chipmaker had lost 3.5% over the past month, lagging the Computer and Technology sector's gain of 2.84% and the S&P 500's gain of 2.24% in that time.

Wall Street will be looking for positivity from INTC as it approaches its next earnings report date. This is expected to be October 25, 2018. In that report, analysts expect INTC to post earnings of $1.15 per share. This would mark year-over-year growth of 13.86%. Meanwhile, the latest consensus estimate is calling for revenue of $18.10 billion, up 12.1% from the prior-year quarter.

Intel has seen earnings grow at a rate of 17% per year for the last three years and in the latest quarter the company reported earnings growth of 44%.

Analysts are predicting earnings growth of 20% for 2018 as a whole.

The company’s profitability measures are really strong with a return on equity of 24.8%, a profit margin of 34.4%, and an operating margin of 30.9%.

The sales growth hasn’t been as strong as the earnings growth, but over the last three years the company has grown sales by 6% per year and by 15% in the latest quarter.

Intel’s weekly chart shows that the stock has found support at its 52-week moving average after a recent pullback.

Past Earnings…..

The company guided earnings higher on June 21, but slipped after its actual earnings report on July 26. The weekly stochastic readings and 10-week RSI are the lowest they have been since last July. The stock rallied nicely after that temporary pullback and subsequent reversal.

Moving Forward…..

Looking at the full year, the Consensus Estimates suggest analysts are expecting earnings of $4.15 per share and revenue of $69.50 billion. These totals would mark changes of +19.94% and +10.73%, respectively, from last year.

Influencing Factors…..

CFO (and current interim CEO) Bob Swan said during the company's February 2017 investor meeting that buybacks would be used to "offset dilution from our comp-based program," the company's buyback program has been doing more than that as the diluted share count has come down noticeably since that time, suggesting that Intel has been more aggressive about the buyback than simply trying to keep the share count from going up.

INTC currently has a Forward P/E ratio of 11.55. This represents a discount compared to its industry's average Forward P/E of 12.36.

Also, INTC has a PEG ratio of 1.37. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate.

Moving Ahead…..

Intel INTC recently teamed up with Baidu BIDU to aid it in accelerating various artificial intelligence (“AI”) driven processes, comprising finance, shipping and video processing solutions. We believe this collaboration aimed at delivering innovative solutions is a win-win deal for both the companies.

The collaboration was announced at Baidu’s 2018 ABC Summit in Shanghai. The tie-up is aimed to strengthen applications deployed on Baidu Cloud by leveraging Intel’s AI capabilities.

Intel’s broad-based portfolio is focused on providing AI-driven solutions. It will enable applications deployed on Baidu Cloud with enhanced performance, scalability, storage and edge computing capabilities.

Baidu’s private financial clouds will be supported by Intel’s Xeon Scalable processors and Math Kernel Library-Deep Neural Network (“MKL-DNN”). The processors and DNN have been selected to boost performance and security in financial services-related solutions for notable banks of China.

Analysts and Hedge Funds Opinions

Intel has been given a $54.00 price target by BNP Paribas in a research report issued to clients and investors on Tuesday, August 28th. The firm currently has a “hold” rating on the chip maker’s stock. BNP Paribas’ price objective indicates a potential upside of 12.59% from the company’s current price.

Several other equities analysts have recently commented on the company…..

  • Wells Fargo & Co set a $58.00 target price on shares of Intel and gave the company a “buy” rating in a research note on Monday, August 20th.
  • Macquarie set a $60.00 price objective on Intel and gave the stock a “buy” rating in a research note on Thursday, August 16th. BidaskClub cut shares of Intel from a “strong-buy” rating to a “buy” rating in a report on Tuesday, June 12th.
  • Needham & Company LLC lowered their target price on shares of Intel from $62.00 to $60.00 and set a “buy” rating on the stock in a report on Friday, June 22nd.
  • Finally, Zacks Investment Research upgraded shares of Intel from a “hold” rating to a “buy” rating and set a $57.00 price target for the company in a research report on Wednesday, June 27th.

Insider news……

CEO Robert Holmes Swan bought 5,243 shares of the firm’s stock in a transaction on Monday, July 30th. The stock was acquired at an average price of $47.69 per share, with a total value of $250,038.67. Following the completion of the purchase, the chief executive officer now owns 71,672 shares of the company’s stock, valued at $3,418,037.68.

Summary

Per Grand View Research data, the AI market is expected to hit $35.9 billion by 2025 at a CAGR of 57.2% with 2017 as the base year. The projected figure takes into account direct revenue sources.

Given the huge growth prospect in the industry, Intel is putting its best foot forward to seize a major share of the projected revenue growth.

The company’s strength in diversified solutions aimed at accelerating AI-based processes position it well to capitalize on the alluring growth prospects.

Intel Co. has a 12 month low of $35.08 and a 12 month high of $57.60. The stock has a market cap of $226.57 billion, a PE ratio of 12.11, a PEG ratio of 1.39 and a beta of 0.97. The company has a quick ratio of 1.15, a current ratio of 1.57 and a debt-to-equity ratio of 0.35.






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