Trade Alert: INTC, BKS and AAPL updates

Ugly open, to say the least. I’ve been waiting for a sharp sell-off to put some money back to work, now looking at my Watch List and Longs for some slow motion scaling in and maybe a cover of a short or two. And to start with, I’m nibbling on some Intel common stock.

Intel’s chart looks terrible. The stock is acting horrible. And I think it’s starting to look like a good time to scale into some more Intel common stock that I plan to hold onto for the next five to ten years, as Intel’s finally starting to show some traction in mobile and the stock is now yielding 50% more than than 2% interest I can get owning Treasuries.

Go back to when we first bought Intel and look at the reasons and analysis behind that decision:

“Intel’s been left for dead because the company’s PC market is struggling so badly against the aforementioned smartphone/tablet market. The stock is trading at 10x next year’s earnings, net cash and yielding 4%. There’s a very long-term floor around $20 a share. And here’s the deal. If Intel can take even just 5%-10% marketshare in the high-end smartphone/tablet industry, the current analyst earnings estimates for 2015 or 2016 will end up being way too low. I’d expect the stock to run near $40 a share if the company finally starts to catch up in the smartphone/tablet chip industry.”

The dividend has been boosted since then and with the stock now pulling back to near $30 a share, down 25% or so from its highs just three months ago, I think Intel is looking very attractive again. I‘m going to step in and buy a small 1/6th or so tranche in Intel.

I think one of the biggest stories for Intel’s sell-off of late isn’t just that PCs have been lackluster, but that Intel spent billions paying tablet manufacturers to use Intel’s mobile chips in an attempt to break into what they thought might be a huge growth market for many years. Instead, tablets and PCs are markets that are saturated and showing little to no growth. Smartphones are still ruled by Arm Holdings-based chips, not Intel chips.

However, Intel’s now lined up to directly benefit by using the same tablet/mobile chip technologies that they’ve spent tens of billions developing in the last five years on wearables. Arm based chips will still be dominant in wearables, but Intel’s actually early in getting into the Wearables game and trying to figure out how to position itself to profit from its growth.

If my predictions that there will be many billions of wearable devices sold in the next five years are correct, Intel needs only a small fraction of that market in order to break into profitability for their mobile sector along with the growth that would finally kick into the topline.

In the meantime, PCs are not going away, and Intel’s all but killed off its competition like AMD which has benefitted gross margins and profitability in that, their largest, part of the Intel business lines. We are paid 3% annually in dividends from Intel for holding the stock which is very nice. We had a 4% dividend yield when we first entered this Intel position back in 2013, but Treasury rates were also higher back then, and the spread between the Intel dividend yield vs the Treasury rates is about the same as it was — 50% better yield at Intel vs Treasuries.

One other note trading note–

It was an ugly quarterly earnings report from Barnes & Noble’s and I’m holding my short steady for now anyway. We’d gotten the chance to add to our short position with a fresh tranche short a couple weeks ago when BKS rallied big so I might take some profits on that part and cover part of this short here, but no rush.

Here’s the most important part of the BKS earnings report — sales are declining. “The New York company’s revenue fell to $1.96 billion from $2 billion on softness in its retail and Nook segments. The retail segment includes Barnes & Noble bookstores and BN.com. The Nook segment includes digital content, devices and accessories. Revenue for the college segment increased 7.2 percent.”

I for one am very excited about the upcoming Apple Watch. I mean, come on, the App Revolution on your wrist?

Five things to know about the new Apple Watch:

1. Apple Pay is coming to 100000 Coca-Cola vending machines – ApplePay Coke Machines isn’t important in and of itself. But it’s part of making ApplePay hit critical mass — and anyway, it’s so convenient for me to pay to pay for even just a buck or two at a Coke Machine with it when I’m at the airport that makes me want to ahead and start using ApplePay personally.
2. HBO Now service to be Apple TV exclusive – Combining Apple TV with HBO makes both of them much better competitors with the Netflix juggernaut. I don’t know how this HBO and Apple TV partnership can be conceived as bearish.
3. Apple shows off its watch and new MacBook – MacBooks won’t matter over the next two years or two months nearly as much as the Apple Watch and continued iPhone dominance will.
4. Apple Drops Details On The Apple Watch! – I don’t know how anybody can conclude that a few hours worth of trading during a presentation of a product that’s already been publicized by Apple is meaningful. There are millions of investors and traders out there doing what they do with Apple just like they do every day.
5. Apple steps into medical research with Research Kit – Medical diagnostics is just one of thousands of future applications for the the Apple Watch and the information it will be able to collect and analyze for patients and doctors alike.

And a little levity for you before I go.

Here’s The Onion’s take on “Features Of The New Apple Watch.”

Here’s a round up of old analyst quotes from 2007 when the iPhone launched: “As much as any bet they’ve ever made, this is a ‘bet the company’ risk,” said Cody Willard, a New York-based hedge fund manager who has owned Apple’s stock for about five years. “I don’t know how” the iPhone “is going to live up to the ‘god’ device it’s being billed as,” Willard said. “But when we look back in two years, it’s going to be a success.”