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[Ulisses Pereira]

"Intel Has Become the Market in a Nutshell"

By James J. Cramer
12/10/2003 12:39 PM EST


"Candor time: Is Intel (INTC:Nasdaq - commentary - research) done?

Intel has raised guidance three times, but all we've gotten from that is a point and change in gains.


That's the high-multiple conundrum in a nutshell. Let's look at Intel as a microcosm of what's going wrong with this market.

When Intel started this rally, it was at $16 and people figured it would earn 65 cents this year, maybe 85 cents next year if all went well.

Now we are staring at estimates that look like 80 cents for this year and $1.25 for next year, maybe higher.

So from 65 cents to $1.25-$1.30 -- a doubling. And guess what, the stock has doubled. Stock follows earnings estimates up. Perfectly.

But now we're in the "Now what?" moment. Unless someone starts crafting a $1.50 estimate for next year and a $1.80 estimate for 2005, it is getting tougher to pay 40 times what we know or 30 times what we hope.

Now let's add what's going on in bonds. If you think, as I do, that the Federal Reserve is going to slam on the brakes, you start thinking, "Hmm, how much do I want to pay for that multiple in the window?

We don't know what the answer is. But we do know the direction: lower. We'll get a lower multiple than we currently are paying.

So you can see how Intel has become the market in a nutshell; it's the key to this market.

The longer it goes down, the longer we go down. The longer it stays here, the better, because what's in the window becomes in the bag.

Watch this stock. Those who bought it on the news are feeling pretty terrible. Those who bought it ahead of the news probably will come in and buy more around $26-$28.

In the old days, I would have taken one of my screens and typed in INTC over every single stock I owned, a whole picture of Intel.

Because in many ways, it is the only picture that matters. "

(in www.realmoney.com)