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What does a bottoming process in a stock look like? In the case of microprocessor manufacturing giant Intel (NASDAQ:INTC), reaching rock bottom is bound to involve layoffs and a general sense of pessimism. The layoffs aren’t going to be pleasant, but they’re a sign that Intel’s management is doing what’s needed to turn the company around and rebuild confidence in INTC stock investors.
After a euphoric 2021, investors will remember 2022 as the year of the Big Tech wreck. Semiconductor stocks have been particularly downtrodden. And Intel remains stuck in the doghouse even as a new year approaches.
Thus, it feels like news of Intel’s layoffs is a signal of the company’s impending doom. Really, though, it’s a sign that Intel’s management is ready to exercise fiscal discipline — and contrarian investors should be in the mood to buy, not sell.
INTC Stock Is Despised… But Not by Everyone
Again, we have to bear in mind what a bottoming process actually looks and feels like. Think of the stock market in March of 2009 as an example. The bulls were mocked at that time, yet they were 100% right.
Similarly, you won’t make a lot of friends if you go on a financial message board and proclaim your optimism for INTC stock. It certainly didn’t help the bull camp when JPMorgan analysts joined the chorus of pessimistic voices on Wall Street earlier this month.
In case you didn’t get the memo, the JPMorgan analysts issued a dreaded double downgrade. They downgraded Intel shares from “overweight” to “underweight,” and halved their price target on the shares from $64 to $32.
At the same time, Vanguard, BlackRock (NYSE:BLK), State Street (NYSE:STT) and other large-scale investors reportedly held long positions in INTC stock. It’s also worth noting that CEO Pat Gelsinger and board member Lip-Bu Tan are both big-time Intel shareholders.
Intel Layoffs Are Part of a Long-Term Plan
Are Intel’s layoffs bad news? For the displaced workers, the answer is probably yes. For Intel’s shareholders, however, the headcount reduction is a sensible and necessary move.
The company announced imminent layoffs in October as part of Intel’s third-quarter earnings report. This isn’t just a haphazard cost-cutting tactic. Rather, it’s part of a bigger plan to create $3 billion worth of cost reductions next year.
Don’t get me wrong; Intel currently has over 121,000 employees, so it will still be a chipmaking powerhouse even after the layoffs. For November, Intel’s management reiterated its intent to enact “targeted” layoffs. So there’s no doubt that some jobs will be lost.
That’s part of the painful process of driving billions of dollars in outlay reductions. Remember, improving Intel’s bottom line isn’t just about generating more revenue. It’s also about curbing costs, including those associated with human capital.
What You Can Do Now
In the final analysis, the word “layoffs” shouldn’t scare sensible investors away from INTC stock. If anything, this is a sign that Intel’s executives understand the importance of financial discipline.
So, don’t worry too much if some folks on Wall Street hate Intel now. There are also some confident big-money buyers out there — and you can join them, if you’d like, with a long-term share position in Intel.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.