1 Falling Stock to Buy, 2 Dying Stocks to Sell

NEW YORK ( TheStreet) -- As an investor, there comes a point when you have to make a crucial choice: Do I sell this dog or do I average down?

Lots of people ridicule the notion of averaging down as a fool's game. In some instances it is. However, like anything else, with head firmly attached to neck, it can make sense.

When investors consider averaging down they have to ask themselves another serious question: Am I buying more of a falling stock because I truly believe in the company's potential or am I buying out of some sort of stubborn refusal to take a loss or admit that I was wrong, even if only temporarily?

Consider Intel ( INTC), Nokia ( NOK) and Advanced Micro Devices ( AMD)

While I remain long NOK and INTC, I trimmed my NOK position last week, but added shares of INTC. I do not own AMD.

Of course, the carnage at NOK ranks among the worst the market has seen in a while. The stock is off roughly 68% over the last year, 63% year-to-date and 55% over the last three months.

While INTC is up about 11% over the last year, it has put on just 3.4% or so year-to-date. During the last three months, it has shed nearly 9%. AMD is down about 28%, 11% and 36% over the year, year-to-date and three-month timeframes, respectively. NOK Chart NOK data by YCharts

Even though NOK belongs in a class with the likes of Research in Motion ( RIMM), it can, in some respects, provide a nice comparison with INTC. By a similar token, you can use INTC and AMD comparatively.

In the long term, I don't think I am wrong on Nokia. What we're seeing now is a company fight for survival during a tense period of transition. Nokia's market share and revenues continue to plummet. It should come as no surprise that investors continue to decimate the stock.

I have a contrarian view on Nokia. I consider this weakness, as painful as it is, temporary. Because Nokia has, in contrast to RIM, made many of the correct and difficult decisions, I believe it will come out of this period relatively strong. But, being contrarian does not mean you have to be a stubborn fool. We're trying to invest for our futures not play a gain of macho right or wrong.

As such, I had no choice but to sell about 75% of my NOK position. Honestly, I only kept the rest because of the dividend. That doesn't mean I do not believe in the turnaround.

You can believe in the long-term story but rate the stock a "hold" or "sell" today. Right now, I lean towards 'sell.' I fully realize that I might be -- finally -- calling NOK a sell at the bottom. But that's actually the rational thing to do in this situation.

Critics call investors who change their minds flip-floppers. I call them smart with the keen ability to challenge and reassess their own convictions.

If my long-term bull case for NOK ends up playing out, I will have plenty of time to get long again and make money. NOK is not going from 0 to 60 overnight. If Windows 8 helps drive sales at Nokia like I expect, any entry under $3 or $4 will probably end up being alright.

But, keep in mind, that's a wholly speculative bet. Very risky.

I don't view INTC quite the same way. Buying more INTC as it stumbles does not happen out of unreasonable stick-to-itiveness.

Unlike at AMD (and NOK, for that matter), already massive revenue at Intel continue to rise. The company pays a stable and growing dividend. But more than that, Intel continues to innovate in a wide range of areas, including forward-looking and diverse spaces such as automotive technology and social publishing.

Like many Silicon Valley companies, Intel tinkers quite a bit. Sort of like Google ( GOOG), except Intel actually fully invests in its initiatives and takes many of them somewhere.

Think about it.

Intel literally dictates the direction of the PC industry. The only company it even remotely answers to is Apple ( AAPL). Meantime, Microsoft ( MSFT) ends up taking Intel's cue as to the way forward. It's less like a partnership or more a they say "jump", you say "how high" relationship.

While Intel probably does cartwheels after Apple includes its chips in a new Macbook, it tells Microsoft and the company's pathetic hardware partners ultrabooks are the future. We'll give you some seed money. You will build them to our specifications. Good day.

AMD holds no such sway. It operates primarily at the low end of a dying market. Like RIM, nobody in their right mind would buy a company like AMD. There's nothing there. No pluck. No innovation. No future.

If for no other reason, it makes sense to buy INTC during this period of weakness because it declined, in part, as a result of AMD's second-quarter guidance slash. AMD's problems have very little, if anything, to do with Intel.

In a nutshell, you're not averaging down in NOK; you're speculating too soon. I am glad I came to realize that. You're hardly averaging down in AMD; you're catching a falling knife.

With INTC, however, you're buying a company that investors not only undervalue by the book, but on the basis of the type of vision and innovation we see from companies with much higher stock prices.

At the time of publication, the author was long INTC, MSFT and NOK.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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