A Case Against Intel

This weekly chart shows Intel's collapse starting in early 2004 while the NASDAQ 100 ETF (QQQQ at the top) has been rising slowly. The bullish case for Intel, or any respected company in this situation, basically rests on two legs. The fundamental case is that the company will turn around its earnings fall in x quarters. The technical case is that the stock market is stupid and doesn't recognize what a great company Intel is, thus driving the stock price irrationally low and handing the brave or astute investor a great buying opportunity.

I'm not in a position to judge the fundamental case. I'm not an expert on chip technology, and even if I were I'd be totally dependent on Intel's pronouncements to know when anything might be released, and predicting the market's reaction to new products is much more of a crapshoot than analyzing the technology. Without inside information or an extraordinary technical insight (such as discovering a flaw in a major new product), I don't see how an individual is going to get an edge on fundamental analysis without dumb luck.

I think the notion that the market is stupid is an oversimplification. On a short-term basis it's certainly over-reactive, but the idea of mass stupidity on Intel lasting for almost two-and-a-half years seems far-fetched to me. Even for an Iconoclast, it seems more rational to assume the market has been right and stay away until serious money starts flowing back into the stock. I don't see any reason to fight this pervasive relative weakness now.

Posted at 10:05 a.m. Eastern time.