Advanced Micro Devices (AMD) is the semiconductor company that Jim Cramer once regarded as hated and left for dead. Suddenly it has risen from the ashes and has more than doubled since its January lows; prompting Cramer to find out if it is worth investing.
He turned to Bruce Kamich for assistance, a technician, professor at Baruch College and colleague of Cramer's at RealMoney.com. Kamich tends to be negative on stocks, but recently made a positive case for AMD, even as it seemed destined for bankruptcy not long ago.
AMD makes microprocessors for the declining personal computer industry, as graphics chips for computers and videogame consoles. The stock closed at $4.51 on Tuesday, while it was trading at just $1.61 in July of 2015.
"You don't see your stock fall below $2 if you are doing a good job," the "Mad Money" host said.
With the stock rebounding, Kamich found the charts behind AMD very compelling. Looking at its daily chart, Kamich saw that the stock took off in April based on the on-balance-volume line. That is an indicator that measures buying and selling pressure, which turned positive in February and continued to climb. This suggested to Kamich that big money managers were suddenly buying the stock.
From a fundamental perspective, Cramer found that one of the major drivers of AMD's rally is that the bankruptcy risk is off the table. Last October the company reported a better than expected quarter and introduced various strategies to generate cash, including a joint venture with a Chinese semiconductor company that would help the bottom line by $371 million. That deal closed at the end of April.
The company also got creative with monetizing intellectual property and aggressive with cutting costs that helped margins.
"Some of that is seasonal, but the company has now had two straight quarters of year-over-year margin expansion for the first time in years, and that is impressive," Cramer said.
Additionally, the shrinkage of AMD's sales has decelerated, though they are still shrinking. Ultimately Kamich expects the stock to trade to $7 or $8 if it can break out above $5.
However, that doesn't mean Cramer wants to invest in the stock.
"I am willing to bless the stock as a speculative trade, but if Kamich is right and AMD rallies up to $5 or $6, you need to ring the register and walk away, because this chip-maker is still way too risk to own as a long-term investment," Cramer said.