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How to Trade Intel

NEW YORK ( TheStreet) -- Intel (INTC - Get Report) is one of the most important of the more than 7,000 stocks that we follow at www.ValueEngine.com.

After all, Intel is a key component of the Dow Jones Industrial Average, the S&P 500, the Nasdaq and the Philadelphia Semiconductor Index (SOX).

Intel has been generally upbeat about the prospects for the global economy, but this week Intel's much smaller competitor Advanced Micro Devices (AMD) trimmed sales guidance. Intel will report second-quarter earnings on July 17 after the close. The consensus calls for Intel to earn 52 cents per share.

Despite weakness in the semiconductor industry, Intel on July 9 announced that it reached an agreement with ASML Holdings (ASML) to provide $1.0 billion to fund research in the development of new technologies for 450-millimeter wafers and extreme ultraviolet lithography for the next two years. In addition, Intel will purchase 10% of ASML worth about $2.1 billion and commit to another 5% after the initial transaction is completed.

Intel appears to be building for the future even as PC shipments continue to be sluggish. The second quarter was the seventh consecutive quarter of anemic growth in semiconductor demand.

On June 25, I wrote Semiconductor Stocks Key Economic Growth." Since then, economic weakness in Europe has continued to be sluggish. In addition, industry experts report better interest in tablets than PCs.

The benchmark I use for the semiconductor industry is the Philadelphia Semiconductor Sector Index. The SOX ended June below its five-month modified moving average at 396.00, and this made the monthly chart profile negative as the second half of 2012 began. As I mentioned on June 25, this is a warning of slowing global economic growth.

The SOX (359.67) is down 1.3% year to date, while the Nasdaq is up 10.9%. The SOX is only 11.6% above its Oct. 4 low of 322.24 compared to 25.6% for the tech-heavy Nasdaq. The SOX is 24.2% below its February 2011 high at 474.33.

Source: Thomson Reuters

The daily chart for the SOX is negative with a declining momentum (12x3x3 daily slow stochastic) reading, and it's trading below its 21-day, 50-day and 200-day simple moving averages at 375.39, 378.08 and 390.79. Note that strength on June 20 and July 3 tested and failed at the 200-day moving average. My weekly value level is 350.70 with my semiannual value level at 326.30, which is just above the Oct. 4 low.

Intel ($25.39) is rated a buy, according to ValuEngine, with fair value at $29.78. This makes the stock 14.2% undervalued. The ValuEngine one-year price target is $27.76. Intel has held up better than the SOX with a 12-month gain of 14.5% and an average annual gain of 1.6% over the past five years. The forward price-to-earnings ratio is a cheap 9.7.

The daily chart for Intel shows declining momentum with the stock below its 21-day, 50-day and 200-day simple moving averages at $26.56, $26.59 and $25.82, respectively. My semiannual value level is $21.14. The weekly value level is $24.95, and quarterly, monthly and annual risky levels are $27.12, $28.37 and $30.58, respectively.

Source: Thomson Reuters

At the time of publication, Suttmeier had no positions in stocks mentioned.

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