AMD Warning Brings Out Buyers

By Douglas A. McIntyre Published Apr 11, 10:24AM EDT

By Chad Brand of The Peridot Capitalist

Whenever a company issues an earnings warning and its stock jumps on heavy volume, it is usually a signal that an abundance of bad news has already been priced into the shares and a bottoming phase might be underway.

I can’t help but think that Monday’s trading action in Advanced Micro Devices (AMD) falls into this category. I’ve been bearish on AMD stock for a while, but its freefall may be coming to an end. The shares rose 4 percent Monday after the company slashed guidance and announced a restructuring plan.

I have had a ballpark price target on AMD of $12 for a little while and the stock got very close to that level recently, trading at a new low of $12.60 in recent weeks. The pop this week has taken it back over $13 but I think any move back down to $12 would be an intriguing entry point for investors who are fans of the company. In my most recent post about AMD, I suggested that paying one times revenue would represent good value. Of course, with each passing earnings warning their revenue projections drop, but I stand by that assumption.

Given that AMD’s price war with Intel is quite fierce, this is not a situation where I would jump in with both feet because bottoms are very hard to call. However, if the recent buying pressure subsides, the stock goes back to the $12 area, and their annual revenue level can stabilize about where the stock’s market cap is, I think a bottom in AMD could be made.

This isn’t a long term investment by any means given the company’s operational disadvantages versus its main competitor, Intel (INTC). However, given the dramatic sell-off we’ve seen and the reaction to Monday’s announcement, I can no longer strongly endorse the long Intel, short AMD paired trade that I proposed a year ago back when AMD was trading over $30 per share. Intel still looks like the better bet from the long side, but gains from shorting AMD may have run their course.

Full Disclosure: At the time of writing, the author was long Intel’s $10 January 2009 LEAPS and had no position in AMD

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.