Baseball legend slaps 'raging buy' on Intel
Its, er, wireless biz (at Marvell) will surge
Do you want to take stock picking advice from a baseball player? Mmm, probably not. So beware of Lenny Dykstra's raging buy on Intel.
Since retiring from the big leagues, Dykstra has turned into an entrepreneur of sorts, owning car washes, real estate operations, and a variety of other smaller businesses. Dykstra also manages his own stock portfolio and writes about the experience for TheStreet. And, while his columns are sometimes interesting, Dykstra's company assessment skills appear more than rusty with this week's note on Intel.
Intel's shares have suffered through a three-year slump, leaving the company's stock price at about $19, at the time of writing. Dykstra thinks Intel is ready to surge because the company makes a tonne of revenue, has plenty of cash on hand, and goes up against rivals from a "position of strength."
While focusing on these positives, Dykstra ignores the major factors that have hurt Intel's shares such as a slowing overall semiconductor industry and a more competitive AMD.
"Shares have been hurt by weaker-than-expected sales and lacklustre forecasts, but semiconductor inventory levels should begin clearing out by the middle of this year," he writes. "Also, all chipmakers have been hurt by a shift in the wireless handset market toward lower-end phones. However, another shift will occur later this year, as the consumer returns to the new, high-tech handsets, thereby improving growth."
He sure places a lot of emphasis on Intel's handset chip business, which accounts for a teeny fraction of Intel's overall sales, and has a lot of confidence in this mid-year, magic turnaround.
And it only gets worse.
"Although the PC processor is a mainstay, Intel has expanded its product lines to serve the networking and communications markets," Dykstra continues. "The company's mission is to be the preeminent supplier of silicon chips and platform products to the worldwide digital economy, and Intel has taken apart Advanced Micro Devices."
That last sentence should get your forehead wrinkled for a couple of reasons.
For one, Dykstra has lifted that "preeminent supplier" talk right off Intel's website and claimed it as his own language. Have a look for yourself.
Secondly, Intel hasn't exactly "taken apart AMD" what with AMD gaining massive amounts of market share over the past couple of years, establishing itself as a major player in the server processor market and punishing Intel's bottom line through a price war.
You'll recall that Intel adjusted to "taking apart" AMD by getting rid of close to 10 per cent of its staff.
Granted, Intel's share price seems attractive at $19. You get the feeling that the company will always win out in the end against smaller rivals. Intel has the cash and might to wait out momentary challenges from competitors.
Dykstra, however, fails to realise that Intel's drop reflects a changed marketplace in which Intel is unlikely to take 90 per cent or more of the x86 chip pie again. It has a dramatically improved product line and has started to win some business back from AMD. Still, it's tough to imagine Intel's share price shooting up in the near-term given the intense competition it faces from AMD on the product and pricing fronts.
Dykstra fails to provide any sound justification for buying Intel, opting to rely on cliché rather than fact.
But, if that's what you're into, go for the gold. Bet big on Intel's wireless and networking chip businesses.
(In its most recent quarter, Intel's flash business turned in a $186m loss on $576m in revenue, while its "other" businesses that Dykstra loves turned in a $1b loss on $363m in revenue. Intel also loved its communications portfolio so much that it, er, offloaded its mobile chip assets to Marvell. So, that mobile chip surge might not do as much for Intel's shares as Dykstra thinks.)
"Intel has been playing in the big leagues for a long time, and it will always be the biggest and the best, period," Dykstra writes. "I am going to buy 10 July 15 calls (NQGC) at $4.50 or better, which is equal to 1,000 shares of Intel's common stock. This is one of the safest plays I have written about. Lock and load!" ®