The Market Is Clear: When in Doubt, Buy Quality

Some stocks in the same industry may have a vastly different valuation than others. This is typically the market’s way of indicating which company is the industry leader. That may be higher profit margins, or a better product, or even more loyal customers.

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  • This notion recently appeared on the market when chipmaker Intel (INTC) reported earnings. As with its prior reports, the numbers were okay, but poor guidance and a sense that the company was treading water operationally led to a selloff.

    While Intel dropped double-digits and traded flat for the year, shares of Advanced Micro Devices (AMD) continued its stellar gains. In the past year, shares of AMD have outperformed the S&P 500 by 15 points. That’s still a modest return, given that earnings are up 252 percent, and the chipmaker’s revenues have doubled.

    The current global chip shortage is a rising tide that will eventually lift all boats, including Intel. But the market is clear that AMD is likely to continue rising now.

    Action to take: Shares don’t currently pay a dividend, but investors who don’t have access to options trades might consider socking shares away for the long-haul in a retirement account.

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  • Traders can continue playing the current short-term uptrend through the end of the year. The January $125 calls, last going for about $7.55, can likely move in-the-money in the next few months and offer investors high double-digit returns in the process.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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