MorningWord 1/18/13: $INTC’s 2013 Outlook Is As Clear As Mud

by Dan January 18, 2013 9:24 am • Commentary

MorningWord 1/18/13:  INTC’s Q4 report and Q1 /full year 2013 guidance issued last night was nothing short of a mixed bag for investors.  For the quarter, eps was higher than expected largely as a result of a lower tax rate.  Revenues were slightly worse than expected, which should not come as a huge surprise given the macro backdrop and recent PC data,  while gross margins did not come in at the worst case scenario (showing a mild uptick to expectations, but likely a result of cost controls rather than better product pricing).  The guidance for Q1 and 2013 does not suggest a meaningful uptick in the very near future.

INTC’s challenges re-positioning their business from a PC-centric to a mobile-centric computing world is not likely to turn on a dime and the company knows this as evidenced by their guidance for capital expenditures in 2013, ($13 billion plus or minus $500 million), which at the mid point would be a nearly 30% increase vs analysts’ estimates.  This suggests that the company is doing what they have done on almost every prior downturn, OUTSPEND THEIR COMPETITION.  

The company’s outlook also implies a second half pick up in PC demand, which from my experience is the last thing investors really want to hear – that the year will be “back end loaded”.  Essentially, “biz sucks now but don’t be worried, we are kind of confident it will be much better in a couple quarters”.  Throughout my career, I have heard that comment about 100 times too many, and it is not the sort of statement that should instill investor confidence for the here and now.

INTC is down ~5.5% in the pre-market, giving back the last 2 weeks’ gains, which in my mind probably places it at about fair value when you weigh: SPX at 5 year highs, current low expectations, cheap valuation, large buyback in place, a dividend yield greater than 4% and the potential for investor enthusiasm centered around the hiring of a new CEO in the coming months.  The stock could clearly be a classic “value trap”, and for the time being it is a show-me story, as turning a $100 billion company’s focus is not a particularly easy thing to do in technology.

For those looking to play for a turnaround in the back half of the year, buying the stock to benefit from potential catalysts and yield, and selling an upside Jan14 call and using the proceeds to buy a near the money Jan14 put spread could be the way to play.  Receive the dividend, have some upside potential btwn now and Jan14 expiration, and have some downside protection.  I will detail this strategy known by some as  Put Spread Collar later today in A Name That Trade Post.




MorningWord 1/17/13:  As I write, investors are digesting 2 earnings reports that on the surface appear to be disappointing (C missed on earnings & BAC on revenues), which I would say were against fairly divergent sets of expectations.  Both stocks are down a couple % in the pre-market, but this comes after both stocks have had rallies of at least 26% since mid November and faced fairly high market expectations following GS & JPM’s better than expected results reported yesterday.  

In 2013, the group for the most part is on fire.  The XLF (up 4.5% so far) is outperforming most every other super-sector in the S&P, and my sense for the time being this is a bit of a beta chase as institutional investors are looking where they can get continued out-performance as sectors like the home-builders, retail, industrials and tech approach 5 year highs, while the XLF remains 40% below 2008 highs.

I am long C Jan 41 puts that were part of a calendar trade that I will have to make a decision on this morning (the stock is about 1% higher than my strike) and I am long some MS Jan 20 puts which I intend to hold into their Q4 print tomorrow morning.  Stay tuned for updates on both trades.  I am going to try to hold out for a bit though, with the S&P futures up 55bps on the back of better than expected housing starts this am, indicating new 5 year highs, I am anxious to see if we can hold up here.  At this point my sense would be that for the market to hold today, it will be largely predicated on banks stocks to hold their gains as they are one of the few sectors in the S&P to have most of their major components report earnings so far.

BONUS:  Last night I saw one of my favorite bands, The Airborne Toxic Event at Webster Hall in NYC, here are 2 clips that I took from the show.

Sometime Around Midnight

Welcome to Your Wedding Day


MorningWord 1/16/13:  Today just may be the day that I buy AAPL, not with calls, or call spreads, Butterflies or Ratios, I may just get in there and Buy it the old fashioned way, outright with a stop.  With implied volatility so elevated (nearing 52 week highs), there are few long premium ways to take directional views that offer the proper risk reward set up from a trading perspective.  One such way to take advantage from the vol and directional set up with defined risk and reward would be selling short dated put spreads, but that will likely come when we deem the stock to be making a capitulative bottom, and is not the play for a sustained rally.

Some readers over the course of 2012 thought that our negative stance on the stock during its parabolic run (AAPL was up over 70% btwn Jan 2012 and Sept 21st, 2012) was for the sake of being contrarian, it wasn’t, it was for most of the reasons that are now been cited for the 4 month sentiment shift that has resulted in a 30% decline in the shares.

My sense is that the near term sentiment may have shifted just a tad too negative (both by the sell side and investors) heading into the company’s Q1 earnings report on Jan 23.  Analysts have been jumping over each-other of late to lower Q1 earnings estimates (down 15% since Oct), iPhone shipment and of course their overzealous 12 month price targets that they were last seen raising in Sept!

Make no mistake about it though, the set up into next week’s print looks a bit treacherous for those hoping to trade it.  If the company were to miss earnings estimates for the third quarter in a row and offer guidance well below consensus which the street has become accustomed to, well that could signal the stock’s “dead money” status.  From an investment perspective (yes boring buy and hold) if you could buy the stock somewhere near the levels it broke out late 2011/early 2012 I think the stock probably sets up nicely at some point for a move back above $550 when you consider a few potential catalysts that could cause earnings to re-accelerate.  To be fair the only real fundamental catalyst that I see in the offing is a deal with China Mobile to sell the iPhone to their 700 million subscribers.  Geographic expansion, while potentially hazardous to their product margins, should help them compete better from a scale perspective with Android which is growing like weeds in emerging markets.  I am not going to spend too much time on AppleTV, because we dont know anything about it, and won’t until right before it is announced, but being the first major product category launch since Steve Jobs death, once could argue that it poses some near term risks to the stock from a sentiment standpoint (if it just doesn’t catch on).   Aside from the products, investors will be looking for increased dividend, share buybacks and possibly some large strategic acquisitions like (recently rumored deal for Twitter).

So you get my point, here the negatives are well known heading into the quarter, the stock has acted far worse than most bears would have even guessed, but unless the company lays an egg on Q1 and guides well below consensus, I am hard pressed to see the stock imploding.  I am a big believer in the notion that stocks can overshoot on the downside just as they did on the upside, and AAPL’s run last year to $700 certainly suggested a mania, but  a reversal from the slightly bid up levels in the pre-market could lead the stock to a nasty crescendo at which time I may just BUY (holding my breadth of course).



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