<p>What’s the next step for Intel (NASDAQ: INTC)? The shares have been in a huge run since August. But coronavirus from China is starting to be priced in markets. After reaching prices as high as $ 69.29 per share earlier this month, Intel shares began to fall and closed at $ 59.73 on Tuesday.
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The broad chip manufacturer may face problems along the way thanks to the outbreak. With its large sales and manufacturing presence in China, the company’s results in the short term may be less than expectations. Still, with its low valuation relative to competitors AMD (NASDAQ: AMD) and Nvidia (NASDAQ: NVDA), the Intel stock may face less downside risk.
With this in mind, Intel shares can be a great opportunity to buy the dip. If the current crisis subsides, the latest rail can continue to lift all boats – including INTC bearings. Nevertheless, markets may just as well continue to decline. We do not know if coronavirus will trigger an economic downturn or not.
In short, with Intel’s underlying business headwinds and the overall markets experiencing volatility, today may not be the time to buy Intel shares. Let’s dive in and see why it’s best to stay on the sidelines for now.
Intel inventories may exceed 2020 expectations
Coronavirus is far from the only problem with Intel stocks. AMD‘s latest market share has been at the expense of Intel. Competition from Nvidia is another negative factor. If these two high-flying comrades continue to make profits, Intel could be left in the dust.
Still, it is not as if Intel is a floundering company. Intel beat sales and revenue estimates for the last quarter of 2019. But the analysis continues to mean that the Intel share is facing slow sales and profit growth next year.
Intel’s forward-looking guidance supports Wall Street‘s conservative consensus. But according to Ross Seymore of Deutsche Bank, the company could exceed forecasts. The analyst believes that Intel’s guidance is too conservative. This means strong growth during the first quarter, but sequential sales will decrease during the rest of the year. But according to Seymore, this is in contrast to Intel’s previous performance. The company has traditionally had better PC and data center sales during the second half of the calendar year.
He reiterates his “buy” value and $ 72 per share price target and believes that Seymore believes that Intel stocks offer “a positive risk / return” compared to “an otherwise expensive semiconductor sector.” I can not say that I do not agree with him on that point. In today’s frothy market, I would rather own Intel shares than shares in expensive peers AMD and Nvidia.
Still, Intel shares as “cheap” do not make a purchase at today’s prices. While more expensive peers have more room to fall, Intel stocks may also take another tumble in the short term.
Definitely a value stock but can still float
With a forward price-to-earnings ratio (P / E) of 13.5, the Intel stock is a bargain. Peers AMD (forward P / E of 58.9) and Nvidia (forward P / E of 45.7) sell at much richer values. But revenue multiples are not everything. If that were the case, the two later names would not have performed so well in the past year.
Given growth forecasts, it is fair that Intel shares are trading at such a low multiple. Are there more expansions in the cards? All bets are off. With uncertainty due to coronavirus, it is difficult to see if the overall market will continue to make new highs.
The rampant bull market has played a major role in helping slow-growing Intel stocks expand their forward multiple. If anything, Intel shares now have a greater risk of multiple contraction. Even if Intel’s revenue is not damaged by the coronavirus, a market correction could send valuations back to the lowest levels last seen in the early 2010s.
In other words, a P / E ratio below 10. The Intel stock traded at that valuation between the end of 2010 and the beginning of 2013. With a forecast 2020 earnings of $ 4.76 per share, this means that Intel may fall below 47 .76 $ per share.
Let markets absorb Coronavirus before buying Intel shares
Coronavirus first made headlines in January. But it seems that the pandemic is only now creating fear, doubt and uncertainty in the markets. It is difficult to predict whether the eruption will trigger an economic slowdown. If this is the beginning of a downturn, Intel stocks will not be immune to market turmoil.
Intel shares can be cheap today. But “buying the dip” this week can actually mean “catching a falling knife.” Based on historical P / E data, Intel could easily fall below $ 50 per share. At that price point, shares can be a purchase. But until then, take your time and stay on the side.
Thomas Niel, contributor to InvestorPlace, has been writing a one-share analysis for web-based publications since 2016. At the time of writing, Thomas Niel had no position in any of the above-mentioned securities.