Interactive Investor

Chart of the week: this major crash could be chance to buy cheaply

31st October 2022 12:19

John Burford from interactive investor

Odds have now swung in favour of the bulls and analyst John Burford believes this well-respected company is excellent value for long-term investors.

Intel has crashed – is it now a buy?

The US big tech shares have been clobbered in recent weeks – and the mammoth computer chip-maker Intel Corp (NASDAQ:INTC) is no exception. Growth shares – investor darlings while interest rates were on the floor – started falling out of fashion big time when the Federal Reserve signalled that it was to begin raising interest rates last year as it was forced to follow the market yields up. Remember, the Fed follows the market – never leads.

But the computer chip industry was particularly hit hard when supply snags appeared, leading to slower deliveries to car makers, which had to cut back production volumes. This led to long delivery times and produced the infamous inverse scenario where used models for instant delivery were priced higher than new orders with deliveries measured in months!

And Intel’s PC market has continued to weaken. All in all, a bleak picture.

And it got worse. Last week, the company reported an 83% decrease in Q3 net income from last year, adding insult to injury.

But to reflect this performance, the shares have collapsed from the $68 high in April to last week's $25 low. However, the dividend was maintained with the shares now paying at a juicy 5% rate.

So with a lot of bad news now out in the market, is this as bad as it is going to get? The company has plans to make major cuts to expenses and to bring back some production to its US home soil. That should boost the bottom line.

Turning to the chart, the low last week at $25 just prior to the late-week bounce took it to a precise hit on the Fibonacci 76% retrace of the entire rally off the 2008 credit crunch low! How about that for accuracy of Fibonacci targets?

Past performance is not a guide to future performance.

The boom-and-bust nature of the chip business has been well demonstrated by the almost vertical decline off the April high. But note the shaded pink zone from 2005 to 2015 where shares went nowhere. That is a zone of potential major support. And last week the shares dipped well inside it and, if it behaves as normal, it will provide a basis for a relief rally at some stage.

But has that stage been reached now? I cannot say, but the odds are now swinging away from the bear and towards the bull. 

So, this well-respected leading chip company represents excellent value for long-term investors although keep in mind the lows may not have been reached just yet. Only a decline below the $20 mark would send me back to the drawing board.

John Burford is a freelance contributor and not a direct employee of interactive investor.

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