AMD

[Jason Strasser (strassa2)]

Alright, let me preface this by saying that I am brand new into this type of thing. I am trying out my hand at a little stock research, so I picked the fairly active/volatile stock AMD.

AMD bought ATI Tech in 2006 and at first it was receieved well by wall street and the price soared. However in 2007, AMD has been murdered by INTEL. A big reason for this is a rather controversial issue which involved INTEL handing Dell money (alledgedly) under the table in order to get intel into the computers. The bottom line is that intel has been very scrappy and been doing whatever it takes to get into manufacturers, and AMD is struggling on the marketing side even though its chips are said to outperform Intel's.

Right now there is very suspicious activity on the options spread, there is a gigantic volume of April puts, way higher than normal. Apparently this type of volume either means that a hedge fund is using a scare tactic to persuade people to sell stock, or that there is some sort of impending bad news on the horizon with AMD.

In addition, since AMD aquired ATI, goodwill of over $4b appeared on the balance sheets. This number is likely way too large and is inflating the assets of AMD because of the problems with its merger.

Even though AMD has been getting destroyed in 2007, I think it will get worse. If I was more confident in myself I would short it/buy puts.

So how did I do? I really dont know the lingo and would appreciate any insight into how I should be approaching this kind of thing.

-Jason

[CrushinFelt]

Your only real arguments appear to be:

1) Intel is "scrappier"
2) Possible Hedge Fund Scare tactic (can you provide more on this?)
3) Inflated asse base because of good will from the merger (which every other analyst on the planet has seen and is likely priced into the stock
4) Bandwagon argument ("everyone else is shorting so I should too")

What's NOT included (just a few ideas):

1) Nothing about the outlook for the chip industry as a whole
2) No comparison between what is being done to gain/maintain market share by each company (not that there's a precise statement you'll find about this, but a few press releases/statements etc should give you a decent feel)

Questions about your observations on the amount of April puts:

1) Where did you find this information?
2) Why would they choose April puts? Just because it is the nearest contract or because maybe that's when chip makers typically unravel their "latest and greatest" (which I think is the case much of the time)?

[technologic]

didn't intel recently release news about a superduper chip in development? and it's position as providing apple with chips can't be hurting it too much.

i think whatever hurt amd's gone through would've already been priced in already.

[Jason Strasser (strassa2)]

I just went on etrade and looked at the option spreads and couldnt figure out why there were so many puts. So then I went on yahoo message board and people there were talking about it, it seems like someone might know something? I got the hedge fund scare thing from speculation on that board.

[Evan]

[ QUOTE ]
In addition, since AMD aquired ATI, goodwill of over $4b appeared on the balance sheets. This number is likely way too large

[/ QUOTE ]
Could you give a little more color on why you think this number is too large? Was ATI public when AMD acquired them? If so, what was their market cap and what was the buyout at?

[Jason Strasser (strassa2)]

Do I just assume anything that sticks out in a balance sheet is already worked into a stock price?

[technologic]

[ QUOTE ]
Do I just assume anything that sticks out in a balance sheet is already worked into a stock price?

[/ QUOTE ]

i think a lot of the equity investors live and die by the balance sheets and quarterly earnings

[NajdorfDefense]

[ QUOTE ]
Do I just assume anything that sticks out in a balance sheet is already worked into a stock price?

[/ QUOTE ]

Absolutely not. Both APT models and EMT assume there are traders taking positions to correct incorrect valuations. That doesn't happen instantaneously, even if you believe all that foolish EMT-hand waving.

Secondly, people routinely overlook/underlook at balance sheets for years on end. Enron would be an easy example. Any company guilty of channel-stuffing, it shows up on the balance sheet and other statements before they announce the earnings miss.

I've owned/followed AMD off and on for 15 years. It will break your heart.

[NajdorfDefense]

[ QUOTE ]
[ QUOTE ]
Do I just assume anything that sticks out in a balance sheet is already worked into a stock price?

[/ QUOTE ]

Absolutely not. Both APT models and EMT assume there are traders taking positions to correct incorrect valuations. That doesn't happen instantaneously, even if you believe all that foolish EMT-hand waving.

Secondly, people routinely overlook/underlook at balance sheets for years on end. Enron would be an easy example. Any company guilty of channel-stuffing, it shows up on the balance sheet and other statements before they announce the earnings miss.

I've owned/followed AMD off and on for 15 years. It will break your heart.

[/ QUOTE ]

...and read today's news on AMD. Break your heart every time.

[spider]

I putzed around with AMD stock a few years ago. Here is what I learned: AMD has been a pretty terrible buy & hold stock if you look at the chart long term. However, it is extremely volatile b/c it is the distant number two to Intel, but now and then takes a temporary technological lead for a few months and the price skyrockets.

So, there is some money that can be made here, but IMO you really have to follow the technology, and that is pretty tough to unless you are in the industry or at least have a background somewhat related to this industry. The reason is that unlike in other industries, the technology lead changes can happen very quickly and are very large in magnitude. As a counter-example you could think of the auto industry where the difference in both quality and production costs of a Chevy vs Toyota is trivial by comparison, and this doesn't change by all that much from year to year.

I think it's really hard to use standard metrics like P/E to follow AMD b/c their profits (when applicable), revenue, etc. are all extremely volatile.

Good luck if you jump in, AMD is a fun ride if you can stomach the swings!