AMD stock – long term trouble or two year double?

There was a time when I chewed through personal finance and stock investment books at a breakneck pace.  I read all the guru’s books, I read all the motivator’s books, I even read a book by Robert Lichello titled “How to Make $1,000,000 in the Stock Market Automatically”. 

Each book had its own little trick to mastering the stock market.  They are all much easier said than done of course.   One of the constants though is the concept of looking for stock cycles.  I’ve spent the last 10 years ranging from mildly interested to obsessed with following the stock market and looking at stock charts.  Stocks to tend to move in cycles, but its often difficult to know when the trend will turn and whether or not the current cycle will buck the trend or not.

I’m having the same conundrum with Advanced Micro Devices stock right now (AMD).  Its off considerably as of late with a host of profitability issues, cash flow burn, lagging product line, integration with its relatively acquisition of ATI (in mid-2006), etc.  AMD has always been the underdog in the war with Intel, but the question is whether or not it has the strength to come back now.  As of today, its trading at $6.11 a share.  If they can’t turn themselves around, they may very well go out of business, get aquired at a rock bottom price (though I’m not sure by whom) or spin off one of their business units and hope that their parts are worth more individually then they are as a whole. 

The potential is huge though if AMD can turn around.  They’ve done it several times in the past and, at this point, it seems most everyone thinks they cannot pull it off.   Looking at their chart, they went public around 1983/1984 at a split adjusted ~$10/share.  By 1991 they were trading at somewhere around ~$3/share.  Between 1995-2000 they traded between $6-$22/share.  2000-2005 saw a range between $4-$50/share.  Since 2005, they’ve traded between the low 40’s and their new low of $6 a share.  It seems the normal range for them is somewhere in the $10-$20 range. 

A turnaround certainly won’t be immediate but, if they can manage to turn things around, it seems this could be a reliable double or even triple over the next 2-3 years. 

I’ve been burned by AMD stock so many times in the past that I’m very negative on them, but the recent halving of their stock makes the bargain-hunter in me perk up as a risky, but potentially very rewarding play for the next few years.