Stock Pick: Advanced Micro Devices (AMD)

Advanced Micro Devices (AMD) is a semiconductor company that operates in 23 countries. It is the second largest manufacturer of personal computer microprocessors. In addition, the company makes other PC components such as flash memories, graphics processing units, and motherboard chipsets for business and consumer markets. As of June 2018, AMD has a labor force of 8,900 employees with sales of $6 billion in fiscal 2018.

Technical Analysis of Advanced Micro Devices (AMD)

Advanced Micro Devices has been retracing ever since it posted an all-time high of $34.14 in September 2018. At that level, the stock was starting to lose bullish steam. The weekly RSI showed that it was extremely overbought. In addition, the stock failed to take out resistance of $33 after trying for three consecutive weeks. Lastly, volume considerably declined after the stock posted its ATH.

These signals indicated bullish exhaustion. With waning volume and momentum, the stock nosedived.

Technical analysis shows that the stock’s price is likely headed to its parabolic support of $14.55. This area used to be a firm resistance. AMD struggled to take out this level from February 2017 up until May 2018. When the stock finally breached the resistance, it started a parabolic run that saw the stock climb to its ATH.

With AMD currently showing bearish signals, it can rely on the parabolic support of $14.55 to generate a possible relief rally.

Fundamental Analysis of Advanced Micro Devices (AMD)

On top of our technical analysis, fundamental analysis also backs our short-term bullish view.

While the company has given notice to its investors to expect weaker Q4 revenues, its fundamentals remain strong. AMD beat expert estimates as the company posted earnings per share of 13 cents versus analyst estimates of 12 cents per share. More importantly, the company reported a gross margin of 40% for the third quarter, which is significantly higher than last year’s gross margin of 36%. This tells us that the company is retaining more in profits on each dollar of sale.

Also, its trailing twelve months price-to-earnings ratio (PE ratio TTM) is 52.18. The stock may look overvalued but not if you consider its five-year maximum of 458. This tells us that investors are happy to pay top dollar for these shares. Thus, we can say that the stock has more upside potential.

The strategy is to buy on dips as close to $14.55 as possible. As long as bulls hold this level, AMD will likely generate the momentum to bounce to our target of $19. Breach that level and there’s a possibility of moving as high as $21.82.

The timeline for the target is less than six months.

Weekly AMD Chart

Monthly AMD Chart

As of this writing, the Advanced Micro Devices stock (AMD) is trading at $17.19.

Summary of Strategy

Buy: On dips as close to $14.55 support as possible.

Target:  $19 and then $21.82.

Stop: Close below $14.


Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.