Revisiting the AMD/Intel Pair Trade
While the idea is fairly old, traders may want to consider giving the AMD (NYSE: AMD) / Intel (NASDAQ: INTC) pair trade another go. When looking at a comparison chart, going long Intel and short AMD would have resulted in gain of roughly 46% over the last year.
The fundamentals on Intel seem fairly solid. The company has a P/E ratio of about 11, PEG of close to 1, and very little debt. Its sales growth is a little lethargic at a slight 0.46%, however, compared to its peers it's almost a superstar. Most broad line semiconductor companies have double digit negative sales growth currently. Operating margins are good, and management metrics even better. EPS growth for the quarter is anemic at -6.45%, yet was a positive 18.84% this year. Intel's dividend yield of 3.22% is rock solid. With a payout ratio of only 33%, it may even have room to raise it at some point.
Looking at a chart, Intel has a primary bull horn pattern with a secondary bearish wedge. It has been following the bearish pattern since May 1st, but now it appears to have found some support at the $25.00 level. Traders could use that to trade a long position. Intel has good historical performance with an approximate 5 year, 3 year, 1 year CAGR gain of 4.4% 15.1% 17.9% respectively.
Fundamentals for AMD pale by comparison. The company reported adjusted EPS of $0.06 on Thursday. Unfortunately, the company has no dividend support and a relatively high debt burden. Revenue has held reasonably steady and earnings reports show three consecutive down quarters prior to Thursday's release.
Technically AMD is a disaster, showing a confirmed breakdown below primary support trend as well as long term support line at $4.75. AMD has very bad historical performance with an approximate 5 year, 3 year, 1 year CAGR gain of -22.75%, 0.75%, and -35.38% respectively.
Many brokers may not allow traders to enter short positions on a stock below $5.00. Still, it may be a good idea to wait for a bounce to enter.
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