How tempting is it to buy some of these semis. Every decline has been a fantastic time to pick some up. Every time I hear that "canary in a coal mine" line, I want to scream because it's typically uttered after the coal miners are all dead and I heard it all day yesterday about the chip stocks after some high-profile disappointments.
But the reason why I, in the end, have to say wait, not yet, is because we know some companies are going to get hurt now that we finally are starting to fight back against the Chinese and from the looks of it they have decided to draw the semiconductor line in the sand.
We own Broadcom (AVGO) and Nvidia (NVDA) for the charitable trust, cut them back as much as we think feasible and have no desire to buy more right here. Broadcom just had a huge run on that buyback news. We all know how emotional Nvidia is and, as we know from my interview with Jensen Huang, the CEO, all Nvidia shareholders have to deal with a fragile set of owners, those who bought stock because of Ethereum. The crypto maniacs I call them.
These are roller-coaster stocks, with little stability and bad holders and renters.
So why don't we go all neutral. Let's consider the case of Dow component Intel (INTC) , the incredibly well-run company with no sacred cows - they just closed down their wearable division after just a few years worth of forays.
Intel's a fabulous company, but like Microsoft (MSFT) under the voluble Steve Ballmer, it sat out the whole smart phone revolution. That caused a lot of other companies to race ahead of them but, for the moment, that silk purse has turned into a sow's ear.
It's because of their lack of cellphone exposure that Intel's suddenly intriguing because the company's going up against Nvidia in the data center and autonomous driving courtesy of its Mobileye acquisition and there's a whole lotta runway to both trends.
Intel's also been able to capitalize off the resurgence on the personal computer, the work station and the desktop, businesses that have started to grow again in part because, as Dion Weisler, the CEO of HP Inc. (HPQ) , put it to me recently, the new PCs are so cool you would never recognize them versus just even a few years ago. It's got some very good growth where there was no growth and for that plus the data center/autonomous driving you are only paying 14 times earnings.
What's not to like?
Okay, I will tell you what's not to like. Because of all of those great things this stock simply hasn't come in. Yep, it's the semiconductor stock the smart money is hiding in while they wait out the storm of cellphone slowdowns and Chinese retaliatory actions.
I think if it were to drop lower, 10% from its high AND we saw no more tech tit for tat with the Chinese, the stock would be mighty tempting for a first buy. The problem is if the money comes flowing back to the semis any time soon I think it is going to go to rotate to Nvidia or Broadcom, not Intel. And if the market goes down hard I don't know if you want to buy any more Intel after that first purchase until it's appreciably lower.
I spend an awful lot of time thinking about p-e's. My life's pretty much devoted to figuring out which ones are right and which ones are wrong. In many ways I think the gap between the forward p-e's of Microsoft, now 24, and Intel, 14, seem wrong: both are about the PC and the data center.
But my ultimate problem is that there's a love affair with software right now, especially cloud based software and there's a big hate on hardware and I don't see what's going to change that.
So, ultimately as tempting as it seems, for now I have to take a pass. No it's not like Micron (MU) where, if the stock goes lower you know that's because the cycle may at last be over. There is no cycle with Intel.
But there's no catalyst in sight, either, short of splitting the company into PC semis and fast growth semis like I want to split IBM (IBM) into its slow growth computing and strategic imperatives betting that the fast stuff will be mispriced.
How about that semi canary in a coalmine talk? Oh, cut the gibberish. Catalyst to buy? I haven't yet found one. As much as I respect Brian Krzanich and all he has rebuilt, the stock, for the moment, at $52, just TWO bucks off its high, is in no man's land and in this market no man's land is no place to be.
