Tech Sector's Intel Speeding Ahead
When was the last time that too little inventory was an issue for a semiconductor name?
Turned on some music to start my day
I lost myself in a familiar song
I closed my eyes and I slipped away...
- More Than A Feeling - Tom Scholz / Boston
Boston's first album, appropriately named Boston, was released on August 25, 1976 and it was the first record I bought all on my own. The cover itself was reason enough for ownership. The black background with the Earth engulfed in the initial stages of a fireball as spaceships carrying various cities zoomed away to safety was hypnotic. Once inside the album I must have read the liner notes about 100 times, being particularly impressed that Tom Scholz received a Master's degree in Engineering from MIT in 1969.
After Intel's (INTC) earnings announcement last night I think the tech sector is finally getting the peace of mind that it deserves. Now there are a couple of things one needs to take into consideration when looking at Intel. First, this was a $19 stock in April so we have already seen a 39% move higher in this tech giant. And second, the massive restructuring it put into place finally seems to be paying dividends as Intel guided its 4Q gross margins to 57% +/- a couple of points versus Street consensus of 54.9%
One of the themes I have talked about for a while now on Fast Money is the global PC demand being at record levels. And to a large extent, Intel's earnings backed that up as the $1.86 bln it earned this quarter was 43% higher than the same quarter a year ago. And a few other things were worth noting. Intel management said it is seeing pretty broad-based demand strength with no sign of abatement. It went on to say that inventory levels are currently lower than preferred given the demand environment and it is targeting a slight overall increase during the fourth quarter. When was the last time that too little inventory was an issue for a semiconductor name?
Even with the move higher we have seen this year, I think Intel is a compelling story. And frankly, the trading strategy looks pretty simple. I think one can own the stock as long as it stays above $26 with an upside target of $34 or the same levels we saw in January of 2004. To that end, today we saw Citigroup raise its price target for Intel to $33 from $31.
It's been such a long time that Intel has been at these levels, but with its smokin' earnings from last night and a great forecast going forward I think INTC may be hitchin' a ride to $34.
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