FOOL PLATE SPECIAL
An Investment Opinion
Intel Upgraded: Time to Sell?
By
Brian Graney (TMF Panic)
January 10, 2000
Investors in chip maker Intel Corp. (Nasdaq: INTC) got some comic relief today ahead of the company's fiscal Q4 financial report, which is expected to be released on Thursday. The sell-side analysts whose job it is to follow Intel's day-to-day movements always jockey for position ahead of an earnings release like over-anxious teeny-boppers waiting for 'NSync concert tickets to go on sale, and this quarter is no different. But this time around, BancBoston Robertson Stephens analyst Dan Niles got the jump on everyone, raising his rating on the company to "buy" from "long-term attractive" this morning and putting some stank on it with a $100 per share price target.
Typically, the Fool News team disregards the general short-term paranoia of analysts, many of whom change their minds on their buy-sell-hold ratings and price targets more often than an attentive parent changes a newborn's diaper. However, Niles' latest change of heart deserves some attention since he did such a wonderful job last time he changed his mind, going bearish on Intel in mid-April of last year when the stock was changing hands at about $65 per share. Within six weeks of Niles hitting the airwaves and telling investors to sell, Intel bottomed out at $50 1/2 per share -- and then started to rise and rise. By early September, Intel had hit its recent 52-week high of $89 1/2 per share.
Given Niles' record as an Intel "rear steer" rather than a "lead steer," today's ratings switcheroo might be a great signal for investors that the end of the company's recent run may be near. That's just a guess, of course, worth about as much as any other run-of-the-mill prediction of the future. Intel gained about 4% this morning, coming within a few microns of its late-summer high.
Apparently, Niles feels that now is a good time for investors to start "rotating back" into technology hardware stocks like Intel, regardless of the fact that the company's market price is about 32% more expensive than it was when last year's "Abandon ship!" first went out. Pulling the old "sector rotation" gambit out of the playbook is any extra special Wise touch, since it suggests that investors should start treating their portfolios as if they are little more than car tires or mattresses.
In order not to pick on poor Mr. Niles too much, Fools should archive this short tale under "analyst accountability" rather than "analysts to avoid." In fact, the actual analysis in Niles' report last April appears to have been spot-on; it was just the predictions about Intel's short-term price movements that came up short.
Intel's year-over-year revenue growth in Q2 and Q3 of last year did slow down, just as Niles had feared when he issued his downgrade. But despite missing the consensus estimates for revenues and profits in each of those quarters, Intel's stock price kept chugging right along on an upward trend, just as it has for the past 10 years or so.
Unfortunately, as is so often the case in news involving analysts, investors who heard about Niles' decision last April probably only picked up on the ratings change, not the actual analysis in the report. In a quick business news wrap-up about the major stories of the day or a 30-second soundbite on CNBC, the word "downgrade" followed by some lame chart of the day's trading range is the short-attention span norm.
Likewise, investors today could easily just zero in on the word "upgrade," buy shares of Intel, and forget about examining side issues, such as whether the company is attractively valued at its current price. That's a sucker's game in the long-run and is little different from investing on cocktail party stock tips. Don't fall for it.
Related links:
Fool on the Hill, 1/5/00: "Pay No Attention to the Man Behind the Curtain"
Drip Port, 4/14/99: "TV Says Sell Intel"
