The stock market, it seems, has been going straight up. And now the market is expensive.
Make no mistake about the real reason for the market’s rise. This chart shows that stocks are moving up in lockstep with the Federal Reserve printing money. And the momo (momentum) crowd is following along obediently.
In this situation, what is a conservative investor to do? Is there anything left to buy?
No worries, there are many strategies that conservative investors can use. Intel INTC shows the way. Let’s explore with the help of two charts.
Please click here for an annotated chart of Intel that was published in 2017.
Please click here for a current annotated chart of Intel’s stock performance and AMD’s AMD.
Note the following:
• In 2017, I was getting emails from investors similar to the ones I am getting now. The stock market had been going up for eight years. Conservative investors were trying to figure out what could they buy that was safer.
• The Arora Report took a position in Intel with an average price of $34.01. Subsequently we repeated the same call several times.
• The first chart shows the breakout in Intel from a triple top that provided investors with one of many subsequent opportunities to buy Intel stock after our initial buy call.
• At that time, Intel stock was inexpensive, had a nice dividend, a rock-solid balance sheet and a dominant position in the market. Many gurus had sell ratings on Intel.
• The second chart compares Intel to AMD.
• For the period shown in the second chart, Intel shows a price return of 134%. In addition, there have been significant dividends. This includes the big bear market of 2008-2009.
• For the same period, the second chart shows AMD’s stock returning 256%.
• On the surface, it would seem that AMD has been a significantly better investment. However, that is not necessarily true for conservative investors.
• The second chart shows that AMD’s stock has been highly volatile. Intel has been relatively less volatile, not only compared to AMD but also to the semiconductor sector, as represented by the semiconductor ETF SMH.
• Most conservative investors simply cannot stomach the volatility that AMD has shown.
• In this case, AMD stock has worked out, but that is not always the case. It is not uncommon for highly volatile stocks that at one time or another fall significantly, like AMD did, to never recover. Stocks that do not recover are far more common than stocks that do recover.
• Intel reported earnings and projections better than the consensus and the whisper numbers.
• Intel has a trailing price-to-earnings (P/E) ratio of 14.82, a forward P/E of 13.53 and a PEG ratio (five-year expected) of 1.92.
• Intel provides a dividend of 1.99% even after this increase. The yield based on the original buy price of The Arora Report is now almost 4%.
• AMD has a trailing P/E of 270, a forward P/E of 46 and a PEG ratio (five-year expected) of 1.86.
• AMD doesn’t pay a dividend….Read more at MarketWatch.
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