BY MARK SEBASTIAN 

October 5, 2023 

Hey Trader,

This is a stock chart of SMH over the last 2 years.

Looks pretty good, it’s up about 14% over the last two years…not great…not awful.

This is a chart of NVDA relative to SMH.

NVDA is up 123% in the last year and represents 20% of the index.

This means that without NVDA…the index would be down.

But what about all the other chip makers you might ask…they are mostly down…

AMD is up 1.00,  MU is down,  INTC is down, and TSM…is down too.

Outside of NVDA,  chips have mostly been a loser.

The biggest loser of the group though…might be INTC.

Two years ago the stock was about 54 dollars….while it is off its trough of 26 dollars a share,  it is still down 18 dollars,  good for north of 33% haircut.

On Wednesday the company announced that they were spinning off their programable solutions unit.

This is their second spin-off in the last year… the most recent is Mobileye Global which started trading in October 2022.

While INTC is down from 2 years ago it is up the last 52 weeks and MBLY is up about 50%.

With the spin-off coming,  this is going to create what we in the business call a special situation…

We do not know the details yet on how the spin-off will pay,  but the last one performed well.

So…is INTC a buy or a sale?

Let’s break it down.

INTC has its problems…

The company lost money over the last 12 months…mostly from write-downs.

But it does have some good points.

The good…

The company is producing positive cash flow more than enough to pay its dividend.

The company has high gross margins at 38.27% and what I like best is its nice low debt-to-equity ratio of .44.

Although,  that number has been climbing…something I do not like.

More importantly, the company is building foundries in the United States…they were a huge beneficiary of the CHIPS Act…although the stock price does not reflect that yet.

With all of the companies INTC has,  they have been spinning off businesses that are not its core.

You never know which one of these will take off,  Mobile Eye has been a nice win although not a huge game-changer for shareholders…

But,  any given spin-off can become a home run.  The classic example is Target.

Target was founded by Dayton Hudson the Mall Retailer of Dayton and Hudsons fame.

By 2004 when Dayton-Hudson had changed its name to Target Corp,  the original stores…now all called Mashall Fields…were sold for 3.24 billion dollars….

Macy’s eventually bought Mays and now the total company is worth less than what Macy’s bought Macy’s for…

So a spin-off is always interesting.

What is about to happen is called a special situation.  Arbitrage traders love these….but most regular investors barely notice.

Now,  the intel story is unlikely to become the story of Marshall Fields (sigh)…but it is a lesson on the value of picking up these extra shares in spin-offs.

The bad…

INTC needs to get going on chips that service AI…they are behind the curve and have moved slowly.

That low debt-to-equity ratio is increasing…never a sign I like.

The company has taken advantage of the CHIPS Act…but can it execute?

When you look at a long-term chart of intel,  what you see is a stock that pays a dividend and moves up and down but basically does not go anywhere.

It was 21 dollars 12 years ago… it was below 25 in March.

The spin-offs make ownership here over the last decade better than just intel,  but a name like NVDA has done much better.

The Verdict…

My team is going to dig into this special situation because that could flip INTC into a serious buy….

But for now…I am a put seller.  I want to own it below 27.5.

Your only option,

Mark Sebastian

Questions about that? Leave a comment below!

P.S. Watch the best duo in the biz. Voz and I just hosted our Trade to Close launch party with a brand-new trading platform. Click to see!