Falling back to $30s, Intel (NASDAQ:INTC) stock has already started to give back its post-earnings gains from earlier this month. This is not surprising.
In my view, this extreme move higher for INTC stock after its latest quarterly earnings report made little sense.
With this, it appears the market is starting to take off the rose-colored glasses. Investors have resumed viewing the company with a more critical eye. As recent sell-side analyst reports have argued, a turnaround for this floundering chipmaker is going to take to (possibly) prove successful.
In the meantime, the semiconductor market downturn will keep weighing on both Intel’s operating results, as well as its share price. The stock could slide back to its 52-week low, then onto even lower prices. Far from a great opportunity to go against the grain, this is a situation where it’s best to stay away.
INTC Stock and Its Likely Further Move Lower
With a trailing price-to-earnings (or P/E) ratio of 8.9, at first glance you may think Intel shares are already dirt-cheap, with little downside risk. However, take a closer look at the details, and you’ll quickly think otherwise.
On a forward basis (based on full-year 2022 estimates), INTC stock trades at a much higher multiple (14.1 times earnings). Compare the current stock price the sell-side’s 2023 earnings forecast ($1.25 per share), and INTC ceases to look like a value play.
Instead, shares appear pricey compared to uncertain prospects and are primed for an additional correction in price. The semiconductor market as a whole is now expected to experience a 4% contraction during 2023. As chip demand keeps softening across the board, there’s a strong chance Intel’s results for 2023 are in line with, or fall short of, current estimates.
The continued drop-off of INTC’s earnings next year is more than enough to push the stock below its 52-week low ($24.59 per share), and perhaps toward the low end of analyst price targets ($18 per share), although the stock’s high dividend rate ($1.46 per share annually) could limit the chances the stock falls to sub-$20 per share prices.
A Tough Road Ahead for Intel
Despite the concerns raised above, you may still be interested in going contrarian, and buying INTC stock. You may be willing to put up with further volatility in exchange for potential upside if the company’s turnaround plays out.
Feel free to pursue this, but again, keep in mind that Intel faces a long and uncertain path to a turnaround. At least, that’s the view of Cowen analyst Matthew Ramsay, who stated in a recent research note that 2023 and 2024 stand to be “exceptionally difficult years” for Intel.
This is not only due to the current slump in the semiconductor space. The fact that competitor Advanced Micro Devices (NASDAQ:AMD) will likely grab additional market share at Intel’s expense is an additional hurdle. As InvestorPlace’s David Moadel wrote on Nov. 11, another sell-side analyst, JP Morgan’s Harlan Sur, has a similarly-bleak take on the company’s turnaround prospects.
That is, Sur believes it’ll take Intel “several years” to regain lost market share. Although Intel’s management is pursuing other ways to improve the company’s financials (namely cost-cutting), these efforts could fail to outweigh the aforementioned economic and competitive challenges.
The Verdict
In the coming year, Intel’s fundamentals could deteriorate further. INTC in turn may move lower in response. Over the next few years, the company may make far less progress in improving its operating performance than optimistic investors currently anticipate.
Cost cutting may enable INTC to maintain its high dividend, yet this alone will not prevent continued decline for shares. Collecting that 5.05% yield will feel far less profitable if shares take another double-digit tumble over the next twelve months.
While shares have fallen significantly since the start of the year, this stock is far from being a bargain.
There are many other stronger opportunities out there among semiconductor stocks, including seven that are poised for continued growth. If you’re bullish on this sector, consider them instead, and continue to skip out on INTC stock.
On the date of publication, Louis Navellier had a long position in AMD. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.