Rotation Is the Winning Game in 2022

Hey There Income Hunters,

 

We talk a lot about going with the flow, and in 2022 that will be more important than ever.

 

Here’s why …

 

The Fed is attempting an impossible balancing act that will make it difficult to trade longer-term this year. 

 

Jerome Powell is being forced to talk super-tough in hopes of causing a correction in stocks. Lower financial asset prices will act as a tightening for the Fed by reducing overall wealth and forcing consumers to reel in spending. 

 

No matter what, the markets will chop around as money flows to value as opposed to the majority of investors chasing a macro trend. 

 

This will be an environment for following the money flow to value …

 

Today, we’ll look at a stock that has tremendous value, plus a way to harness that value. 

 

Intel Corp. (Ticker: INTC)

 

Intel is a dominant player in the designing and manufacturing of microprocessors. They have a wide economic moat protecting their franchise via their cost advantages.

 

They are also constantly in pursuit of opportunities in the Internet of Things space, AI and electric vehicles via their purchase of Mobileye for automotive computing. 

 

Intel recently announced that their first-generation high-powered graphics processing units (GPUs) have already started shipping to manufacturers. 

 

These units support high-level gaming and creative features that will allow Intel to compete with Nvidia (Ticker: NVDA) and Advanced Micro Devices (Ticker: AMD) products.

 

The best way to see how much value Intel provides investors is to look at the INTC/VanEck Semiconductor ETF (Ticker: SMH):

 

 

Notice the weekly RSI/Price divergence as the ratio sunk to new lows, while the RSI of the ratio made higher lows.

 

Let’s check Intel’sa technical setup for a good location to buy …

 

 

Notice the breakout above the 50-day moving average on good volume. I’d like to see a test of the breakout enabling an entry around the $51-52 levels.

 

Doing Everything Well … 

 

Now, not only is Intel trading at an almost 20% discount to fair value, ust look at the up trends in earnings per share and sales, and the downtrend in shares outstanding:

 

 

What more can a shareholder ask for?

 

Plus, INTC has a massive price advantage that earns them a wide moat and barrier to entry into their core business. 

 

Bring It Home

 

This year it will be important to harness value in individual stocks more so than just getting long or short the broad index. 

 

So, you could consider a paired strategy where you can hedge a long position in a stock like INTC with an ETF that holds the value stock in it.

 

That is why I chose the semiconductor ETF SMH. SMH holds a 5.3% weighting in Intel, and as I showed earlier it is extremely cheap compared to the ETF.

 

I will be working on paired strategies and will be sure to come back with ideas.

 

As always I appreciate your thoughts and questions – so send them in!

 

Live and Trade With Passion My Friends,

Griff

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