Intel Delivers Upside Surprise, Then Slides?

Intel last Thursday reported a better-than-expected fourth quarter and guided higher for 2010, but the stock sold off regardless. Given the strong results, we should have seen a move upward, though days later INTC is still trading below its pre-earnings share price. So what gives? And was the Mad Money host wrong to be so bullish about this tech bellwether?

For an answer, Cramer turned to the charts. A monthly picture of Intel shows the stock’s trading range at between $18.50 and $21, but INTC had run past the high end in anticipation of the quarter. When a breakout didn’t follow the report, and that could have been because of a bad day in the markets, the more technically minded investors figured Intel was stuck in its range and they took profits. The same thing happened back in October when the company announced its third-quarter numbers, too.

The good news, though, is that Intel has posted a series of higher lows, meaning the demand for this stock is growing. And one of Cramer’s favorite technical analysts considers INTC a buy on any pullback below $20. This technician also said that the longer Intel stays near the higher end of its range, the more likely it is to break out on the next rally.

And the fundamental case for Intel is just as strong. The fourth quarter saw a 28% year-over-year jump in revenues, a 65% increase in gross margins and a boost in business across the board. The company is selling more chips and, thanks to strong pricing, is generating bigger profit from them. And again, Intel did guide higher for 2010, pointing to new products, high demand for PCs and the release of Microsoft Windows 7.

While Cramer called Intel “the best semiconductor play on earth,” he said he also likes AMD as a more speculative play on the chipmakers. Still, INTC right now trades at just 12 times earnings, arguably the low end of its historical range of between 10 and 25. Plus, there’s a 3% dividend yield here that pays investors to wait for the next move. Considering all this, Cramer thinks Intel is a buy.

“I like the stock so much,” he said, “that right now I want to make it the largest position for my charitable trust if it goes below $20. That’s the strongest endorsement I can possibly give.”

Cramer’s charitable trust owns Intel.

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    Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

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