Sand Spring Advisors LLC
Slow Dribble Becomes a Flood
June 9, 2002
by, Barclay T. Leib
If there is one thing that last Friday's decline in Intel portrays, it is that in current markets, a slow dribble lower can suddenly turn into a flood. Simply because of a modest revision of previously over-optimistic sales and revenue assumptions, a cool $33.4 billion in market capitalization (some 20% of Intel's previous value) was wiped off this one stock in one day.
And yet, at $22 a share, Intel is still expensive. The stock is currently priced at over 80 x trailing annual earnings, and 55 x expected 2003 earnings -- far from "fundamentally" cheap by any means. Indeed, Intel still sports a growth stock multiple, but with the small problem that Intel's bottom-line performance (like Coke, Ford, and Enron before it) is no longer growing. Instead, the overall chip market is laden with oversupply, and Intel has the added burden of AMD's competitive pressures hot on its heals.
In addition, on a purely technical basis, our Fibonacci bands suggest $14.50 may eventually be reached. In the shorter-term, certainly the late September 2001 lows are going to be severely tested.
Meanwhile, does the chart of Intel hold some lessons for the chart of the Dow Jones Industrials? The Dow has held up remarkably well to date through the 2000-2002 bear market, but could its current slow dribble lower suddenly accelerate? Since the Dow is an Index, this would of course be harder to transpire, but it is not impossible. All our work still points toward the DJIA reaching the low 7000's with time.
Non-subscribers are invited to sign up for our premium level of service below, and gain immediate access to this commentary entitled "The Coincidence of Time," as well as our May subscriber-only write-up "The Search for Survivable Themes."
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