INTC vs. AMAT
AMAT is my largest position. I got in last February, and a few days ago. I've seriosly considered buying INTC, but haven't yet. A few thoughts while looking at the 10-year price charts of both companies side by side:
1. Both dominate their industries, and have a brand name in an industry with high barriers to entry. Both have excellent balance sheets, and proven management. Both have been excellent investments. Both stocks began a huge and continuing upward movement in 1992. In the last 5 years, counting backward from the peak in August 1997, both stocks have had a 1000% return, approximately.
2. Both are in cyclical industries, AMAT more so than INTC. Both require huge capital investments up front. For these two reasons, the stock of both companies sell in a PE range well below their long-term EPS growth rate.
3. INTC is AMAT's biggest customer. The market for chips roughly parallels the market for semi-equipment. AMAT's stock peaked in August 1995, and INTC's peaked a few days before then. Both stocks also peaked in August 1997, at almost precisely the same time. However, the 1996 trough happened 6 months later for AMAT. It makes sense that the trough for semi-equips should happen after the trough for the semi industry, since companies like Intel won't begin to order new factories till after their own orders recover. I'm not sure why the peaks should coincide.
4. AMAT has been much more volatile. At it's low point a few days ago, AMAT was at precisely the same price as the 1995 peak. If your timing had been perfectly terrible, it was possible to own this great stock for two years and make no money. On the other hand, timing doesn't seem to be as important with Intel. When it is out of favor, it goes sideways and down a bit, while AMAT gets cut off at the knees, decapitated, drawn and quartered. I exaggerate. Slightly.
5. Therefore: INTC is perfect for dollar-cost-averagers. AMAT is perfect for people who can pick the troughs, and either hold long-term or sell the peaks. INTC only went from 25 to 102 from the 1996 low to the 1997 high, while AMAT went from 11 to 54.
6. In spite of the fact that INTC is the most thoroughly studied company on the planet, there are still constant surprises. The ride up isn't smooth, and the analyst earnings estimates are frequently off by large amounts. Ditto for AMAT. |
