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"The Real Reason Intel Seems So Bad"

By James J. Cramer
RealMoney Columnist
7/14/2004 8:27 AM EDT


"OK, I'll play the hedge fund game. If Intel (INTC:Nasdaq - commentary - research) is so bad, if it is so terrible, if it is such a disaster, then why isn't it at $19? Why isn't it at $21? Why isn't it appreciably lower?

The answer, of course, is that the reason Intel is "so bad" is that so many hedge funds are short it and so many are very good at getting the word out that people are freaking out left and right for nothing.

No, Intel is not a good stock to own today. Heck, it might not be a good stock to own for a couple of months. The next quarter could be down. Blah, blah, blah.

But let's look at it the way someone not in the hedge fund business should look at it, because, in the end, most of us aren't in that game. Nobody liked Intel in the teens a year ago, and then it put on a series of great numbers -- three different upside surprises -- that triggered a run to $36, whereupon everyone upgraded the stock and fell in love with the thing.

Intel believed the upside surprises itself and overbuilt capacity. That was a shame, a business judgment error, in retrospect. Lots of people would have made the same mistake, especially those who thought about the possibility of 5% gross domestic product growth, which had been in the cards for the second half until the recent slowdown.

In the interim, the stock, which is an amalgam of a lot of smart minds because it is as close to a perfectly priced instrument as I can recall, went from $37 to $26. During that period, lots of savvy analysts and some not-so-savvy analysts downgraded it, depending on the price at which it was downgraded.

Now it is at $25 and we are getting another three or four downgrades -- we already have two this morning.

Yawn.

By the end of the day we can safely start buying Intel if we are a multibillion-dollar mutual fund because nobody will be recommending it, so the downgrade factor won't count for much at all.

Let's say you run $10 billion. If you wanted to build an Intel position over time and you didn't own any, you could start with some at $24 and leg in and build at $23 and you would hope -- hope, mind you -- that you could put on your last bit at $22 going into the fall, when you would have what might end up being the last bad Intel number for a year in September. Maybe the stock doesn't bottom and the worst thing that happens is you have to buy a little more at $21-$22, which is a couple of points from here, but not more.

Then the upgrades begin again.

That's the darned cycle. That's how it works.


So forgive me if I yawn at the downgrades today and the panic and the shunning. Not because Intel isn't that bad. It is bad. It is disappointing. But what did you expect from a stock that just went from $37 to $25 -- an upside surprise?

Let the shorts press their bet. You have a six- to 12-month horizon, so you wait a few months and buy. But freak out about Intel? Wasn't the time to freak out about it at $37?

Personally, as someone who owns it for Action Alerts PLUS and can't trade around it because I talk about it all the time and am always frozen in it, I will wait for some five-day stretch in the next four months -- there should be one, maybe when I am on vacation again -- and I will buy a little at the prices I described above. And I will wait and play the cycle. I did it last time, kept some on -- a mistake, I guess -- but took some off for a huge profit in the $30s.

Because I don't run a hedge fund.

Frankly, I find the whole exercise in blasting Intel down here to be somewhat, well, comical. I laugh at the hedge funds telling me how "bad and terrible" Intel is, because I know they need it lower. That's their business.

But don't ask me to play the game any more than I just have.

'Cause it's a silly one. "

(in www.realmoney.com)