By Horacio Marquez
Contributing Editor
Money Morning

As the second-largest provider of electricity to the United States, Constellation Energy Group Inc. (NYSE: CEG) has a tremendous upside. At least, it would if the economy were growing strongly. 

Unfortunately, that’s not the case. And that means Constellation will have to clear a number of hurdles if it’s going to fulfill its long-term promise.
Last year, the company bet big on higher energy prices and paid the price dearly when the economy collapsed.

Constellation’s very high level of debt, with large bond maturities in 2009 and 2012 at that time meant they were flirting with financial disaster.  That forced the company into a deal with Électricité de France SA  (EDF), in which the European energy giant agreed to inject $4.5 billion into Constellation in exchange for almost 50% ownership of its nuclear plants.

That includes a brand new plant, Calvert Cliffs 3, that’s still subject to pending regulatory approval. Maryland Gov. Martin O’Malley has convinced the Public Service Commission (PSC) to hold open, public hearings to determine if this new deal is in the public’s best interest.

One of the main points of contention is the two energy companies’ demand to access the cash at distributing subsidiary Baltimore Gas & Electric Co. (BGE). 

“We know that BGE is a cash cow for Constellation Energy,” said Gov. O’Malley. “We know that BGE pays more than half of all dividends paid into Constellation Energy and has a huge impact on Constellation’s bottom line.  We also know that Constellation Energy has had a tumultuous history over these last few years.”

The Maryland governor also noted that Constellation last year lost 80% of its stock value and was just hours away from bankruptcy before EDF stepped in.

Potential construction costs associated with the new nuclear plant are another large uncertainty. Nuclear plants have the tendency to run over budget, and that means the utilities then come back to regulators asking for rate increases in order to fund the cost overruns. 

On the other hand, EDF Vice President John Morris recently testified to the PSC that "a decision denying EDF’s application or imposing conditions on the approval of the application that cause it to fail, would bring an end to the development” of the project.

And the company’s Chairman and Chief Executive Officer, Pierre Gadonneix, told French lawmakers that EDF expects to get all the necessary approvals for this transaction by the end of the year.

The approval would generate strong economic gains for the state of Maryland, where EDF’s U.S. headquarters are based.

Électricité de France, a firm owned 84% by the French government has its own challenges.  Having bought British Energy Group PLC and embarked in other growth-oriented investments, it too got caught with too much debt. Like Constellation, EDF is in debt-reduction mode.  The company is rumored to be pondering the sale of another 20% stake in British Energy, a swap of electricity assets with German utility E.On AG and the possible float of another 14% of its own stock.

We must also factor in the possibility that destructive protectionism will affect the deal.  The Obama administration recently levied special import duties on Chinese tires.  When governments are forced to confront the tough realities of high unemployment, the likelihood that they resort to protectionism to boost local employment is high.  And this always conspires against efficiency and global growth. 

Fortunately, there is no evidence of any such pressure playing a role yet.

In addition to the many uncertainties about the EDF deal and the Calvert Cliffs plant, we have to deal with regulatory uncertainties that are plaguing the industry.  Evolving environmental regulations will require large increases in capital investments.  These eventually are passed on to consumers, reducing demand.  In the months and years ahead, we might see so-called “cap-and-trade” legislation, smart grid systems and renewable portfolio standards that will complicate things even more in unpredictable ways.

The cap-and-trade legislation, should it pass, could benefit Constellation greatly.  If the United States made a stronger commitment to reducing carbon emissions, nuclear would have to be a big part of the equation. And Constellation already is well positioned to take advantage of this.  But while such regulation would be good for the company in the long run, right now it is just another uncertainty.

We also need to remember that a new nuclear power plant in the United States hasn’t been built in 20 years, so a new labor force and supply chain is needed.  And despite the fact that with the support of EDF, Constellation is the largest nuclear operator in the world, these challenges cannot be achieved overnight.

We are not going to go into the Constellation results in detail.  Demand was down in the United States in general, the summer was mild, and industrial demand – which is down between 3% and 7% in different regions – is not coming back yet. 

Constellation has indeed taken steps to reduce its trading and other risks and divested several non-profitable operations.  The vast majority of Constellation’s June 30 earnings were due to special items that boosted GAAP (Generally Accepted Accounting Principles) earnings.  The special one-time items from divested earnings accounted for about 60% of the strong upside adjustment. But they are not likely to recur, and in this complex business, some other one-time items have the unfortunate trait of appearing out of nowhere – just when it is least convenient to shareholders.

I love Constellation’s strong operating performance, its strong position in nuclear energy, and its focus on growing alternative energy.  These strengths are likely to play out well over the long term, and could even lead this company to superior profits down the line.  But there are too many uncertainties weighing on an already damaged balance sheet, which makes the risk for this company too large to bear in the short term.

If Constellation is hit by any one of these risks, another big hit to the stock could lead to another equity infusion.  And the traditional argument for buying utility stocks as an income investment does not work well either, given its low dividend yield and the company’s need to conserve cash.

So, with so much left to chance, I would not buy Constellation at this time. But there is enough long-term potential, that if I already owned Constellation stock, I would hold it for a while to see if those uncertainties are resolved. But be aware that holding the stock is an overly speculative position that needs to be monitored constantly for the developments that we outlined above.

Shares of Constellation Energy closed Friday down 1.45%, or 47 cents, at $31.84. The stock earlier this month hit a 52-week high of $33.37 after falling to a 52-week low of $15 in March.

Recommendation: Hold Constellation Energy Group Inc. (NYSE: CEG) (**).

(**) – Special Note of Disclosure: Horacio Marquez holds no interest in Constellation Energy Group Inc.

[Editor's Note: Veteran Wall Streeter Horacio Marquez is the author of Money Morning's hugely popular "Buy, Sell or Hold" series, and is also the editor of the longstanding "Money Moves Alert" trading service.

In a new free report, Marquez has identified a category of stocks he has labeled "rocket stocks," which display key characteristics hinting that they're ready to move. One such characteristic: Heavy insider buying. In fact, one particular sector right now is seeing especially heavy insider buying - and many investors will be surprised to discover just what sector it is, and what companies top executives are buying into. For a free report that details these "rocket stock" plays, and that outlines this torrent of insider buying, please click here.]

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By Horacio Marquez
Contributing Editor
Money Morning

In the last few months we have seen a very strong stock market rally. The market has recovered from highly distressed levels and posted exorbitant gains.  In addition the “wall of money” from the U.S. Federal Reserve has pushed risk-prone investors back into the market, pushing its general level up. 

You see, the massive fiscal stimuli and ultra-easy money from the Fed does indeed have real effects on the economy.  Whether you want to call them artificial or real, the stimuli have moved and will continue to move profits, until it is withdrawn.  And the timing of the deployment of the fiscal and monetary stimuli, the timing of its positive effects and the timing of its eventual removal are uncertain.

In addition, we have many short-term uncertainties. The upcoming Group of 20 (G20) meeting has potentially important ramifications for the global financial system and for global currencies. We also will get more data about foreclosures, existing and new home sales and the Federal Deposit Insurance Corp.’s (FDIC) funding needs.  Finally, we have Damocles’ sword hanging over the market with the potential for additional deficit from President Obama’s healthcare reform.

So we are going to go for a safe play that enjoys a nice dividend and presents a compelling value proposition right now: Kimberly Clark Corp. (NYSE: KMB).

When in doubt, go for consumer staples.  And a superbly run Kimberly Clark will do the trick.  The stock has overcorrected recently, and the headwinds of soft consumer demand and volatile commodity costs are abating.  What’s more is that KMB’s major source of growth will continue to be emerging economies. 

U.S. consumer activity is not as dead as it looks.  While unemployment is still climbing, the rate at which people are losing jobs is declining on a consistent basis.  Additionally, the pick-up in home sales and in the stock market is helping slowly reverse the negative wealth effect suffered from last year’s crash.  Programs like “Cash for Clunkers” and tax incentives for purchases of new homes are having a positive effect on those sectors and are generating increased incomes in the industries that benefit from them.

With respect to emerging markets, the situation is even more positive. Advanced economies are surely going to commit their support to emerging market growth at the G20 meeting in Pittsburgh this week. 

This is good for KMB, because supportive trade and capital flows will help propel the main source of KMB’s growth.   Emerging markets have been giving KMB more than three times the growth than advanced economies have.  And the trend will continue.

It is easy to understand why.  For starters, it helps a lot to have much higher population growth.  Also, income growth is higher as the currencies appreciate, and people leave poverty to join the middle class at a much higher rate than in the advanced economies. 

The expected rate of growth for next year in emerging markets will continue to accelerate and dwarf the rate of growth of the United States, Europe and Japan for years to come.

Growth rates in emerging economies are catching its self-sustaining levels, which should lead to further acceleration next year.  This has been my thesis since last October, when I called the turn on Brazil with my recommendation of the iShares MSCI Brazil Index (NYSE: EWZ), which has since doubled in value.

Then we have the issue of volatile commodity prices, which have led KMB to raise prices, hurting some demand.  KMB is taking further restructuring measures to address costs in short order.  This will improve profitability short term, and it will give the company a lasting competitive advantage.

What is critical for KMB’s success is their established brand leadership.  The company’s brand enjoys superior recognition and acceptance and creates sustainable competitive advantage in an industry that is little affected by economic mishaps.  This cements the defensive nature of our call.

Meanwhile, KMB’s price-to-earnings (P/E) ratio on estimated earnings is only about 11 times.  That makes the stock a gift for investors that could easily pay about 15 times for a name like this.  Adding to the allure of the value proposition is KMB’s generous dividend yield of more than 4%.  This dividend is supported by a mammoth cashflow that ensures that it is safe.  In fact, the dividend payout ratio is only 60%. 

Rather than investing in U.S. Treasuries, why not own a stock of a company that will surely appreciate strongly over several years?

And there is yet another reason to buy KMB.  There is short interest that in this market is likely to get squeezed out of their positions.  By many measures, KMB is an attractive short-squeeze play.  Shorts typically increase their positions in defensive stocks in bullish markets in order to go long against highly cyclical stocks.  Now, close to year end, as we are right now, it is highly probable that they will be reversing their position in order to close their books for the year.

And for those lovers of technical analysis, this stock is a gem:

• Its 50-day exponential moving average crossed to the upside violently in mid-July and has been consolidating at these levels.
• The stock is sitting at the precise lower-end of the Bollinger bands.
• And, very importantly, it is way oversold by many key indicators.

So, this is a defensive stock that pays a generous 4.2% dividend yield, and enjoys an earnings surprise upside as it deals with headwinds.

Recommendation: Buy Kimberly Clark Corp. (NYSE: KMB) at market(**).  I suggest you buy anywhere between one third to half of your position initially, and dollar cost average into a full position over the next four weeks.

 (**) – Special Note of Disclosure: Horacio Marquez holds no interest in Kimberly Clark Corp.

[Editor's Note: Veteran Wall Streeter Horacio Marquez is the author of Money Morning's hugely popular "Buy, Sell or Hold" series, and is also the editor of the longstanding "Money Moves Alert" trading service.

In a new free report, Marquez has identified a category of stocks he has labeled "rocket stocks," which display key characteristics hinting that they're ready to move. One such characteristic: Heavy insider buying. In fact, one particular sector right now is seeing especially heavy insider buying - and many investors will be surprised to discover just what sector it is, and what companies top executives are buying into. For a free report that details these "rocket stock" plays, and that outlines this torrent of insider buying, please click here.]

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By Horacio Marquez
Contributing Editor
Money Morning

The just-concluded Group 20 (G20) meeting left us with a chorus of very "prudent" governments and central bankers singing the praises of easy monetary and fiscal conditions. 

So where can we take refuge when all the central banks in the world print money and governments run deficits in order to spend like drunken sailors? 

The answer is gold.

Fortunately for us, we foresaw this scenario a while ago. On April 20, I recommended that investors diversify their portfolios by adding the SPDR Gold Trust ETF (NYSE: GLD).  The fund is up about 14% since that recommendation, but it’s not yet time to sell, as there are still a number of factors working in gold’s favor.

For starters, there is more and more talk of the U.S. dollar losing some of its luster as a reserve currency.  But this debate is moot for the moment.  The reality is that it will take a long time to reduce the preeminent role of the dollar as the store of value of choice for central banks around the world.

Earlier in March and later in June, Zhou Xiaochuan, governor of the People’s Bank of China made a pitch for the creation of an international global currency delinked from sovereign currencies.  This increased speculation about the probability of China deemphasizing the dollar within their extraordinary high foreign reserves of almost $2 trillion. 

Some 64% of global reserves are in U.S. dollars, according to the International Monetary Fund (IMF). So if China and other holders of U.S. debt were to reduce their holdings, it would have a substantial impact on the greenback’s value, as well as on U.S. interest rates, given that those countries would be selling U.S. Treasuries.

Zhou suggested the use of the IMF’s Special Drawing Rights (SDRs) as an alternative. The SDR is a currency linked to a basket of four major international currencies in the following approximate weightings: U.S. dollar (44%), euro (34%), Japanese yen (11%) and British pound (11%). 

But the reality is that this would be highly impractical. To begin with, there are almost no instruments denominated in SDRs that China and other countries could invest their reserves.  And if the IMF issues the instruments, then it would be taking the other side of the trade, which means it would have to start lending in SDRs, too.  This is very unlikely.

Furthermore, no other currency on the planet is large enough to serve as the world’s main reserve currency.  The sole exception, in terms of having a comparable size of the economy, is the euro.  The euro serves 16 members countries of the European Union (EU) and a few others peg their currency to it.  But the problem with the euro is that even though the entire EU is comparable in size to the United States, it is comprised of many countries with very different fundamental strengths and weaknesses. 

Therefore, each of these countries issues bonds and each of these, by themselves, are too small and offer too little liquidity for central banks to accumulate as reserves.

But right now – given the large size of the current and projected U.S. deficits and the easy monetary policy – the incentives for holding dollars have diminished.  The risk that inflationary pressures will build up next year, and in turn lead to higher interest rates, are not negligible, even though the U.S. Federal Reserve keeps assuring the markets that it will stifle these pressures before they materialize. 

Last Friday, John Taylor, a renowned economist and an expert in monetary policy, opined that the Fed would need to start raising interest rates in early 2010 in order to stem price pressures.

In the meantime, emerging markets such as China and Russia complain about the vulnerabilities of the U.S. dollar.  But these visible complaints have to be construed merely as verbal intervention.  These countries are acting in their own self-interest, because they have very large holdings of U.S. Treasury bonds.  They are trying to "encourage" both the Fed and the U.S. government to act very prudently and conservatively with monetary and fiscal policy. 

The United States has offered plenty of assurances to China that it will remain vigilant about inflation. But the trick is being able to identify these inflationary pressures and to take action way before the actual inflationary pressures become entrenched in the economy.  And the Fed will need to rely on its projections to do that. 

In this uncertain environment, making economic projections is much easier said than done.  And one would rather err on the side of being a bit late in raising interest rates and reducing quantitative easing. If the Fed is slower than needed, and some inflationary pressures build, it they can resort to raising rates a bit faster and resolve the problem. But if the central bank raises rates – and reduces the quantitative easing policy too soon – it could send the economy into another recession. 

This could be problematic since it would increase the risk of the U.S. economy falling into a deflationary spiral and put additional pressure on the U.S. financial system.  Therefore, it seems reasonable to assume that the Fed has greater incentive to err on the lenient side than on the hawkish side.

Remember that we are not out of the woods by any means.  Unemployment, which is a lagging indicator, is still increasing and there are many other large problems to resolve in the economy. Without even considering the impact that healthcare reform will have on the U.S. budget deficit, we see the following important headwinds:

• Consumers are very weak.  It’s not just the jobless that have been affected.  The uncertainty about continued employment for those who still have jobs led to an increase savings rates as would be consumers postpone spending.
• The huge drop in home prices has put about one in four homes in an "upside down" mortgage situation. That means consumers cannot sell their houses without taking a loss, and cannot borrow against their homes to make other expenditures.
• The drop in home values has had another effect:  It has increased the need for consumers to save.  This need has been reinforced by the large hit to 401(k) savings and other retirement plans.  As a result, savings rates have zoomed to 7% of personal income. The savings rate could even hit 10% as consumers strive to rebuild their nest eggs.  Additionally, the "Baby Boom" generation has saved too little and retirement is just around the corner.  Consumers make some two thirds of the U.S. economy, so this new predisposition to saving will be a drag on consumption for a long time.
• Capacity utilization is still low, which greatly reduces producer pricing power.  This, along with very high unemployment, gives the Fed time for now.  Low capacity utilization also keeps investments in factory expansion low.
• Recent banking data revealed that many smaller U.S. banks will be closing their doors, taxing the already overstretched resources of the Federal Deposit Insurance Corp. (FDIC), which will have to be recapitalized, adding to the U.S. fiscal deficit.
• We have not yet seen the fallout from the commercial real estate drop, which Money Morning has warned will be severe.  Since the U.S. consumer is not buying as much, many properties will not be able to keep up with their payments and will default on their loans.  Commercial real estate generally follows the trends in residential real estate with one or two years of lag.
• Last, but not least, we are going to see an economic acceleration in the United States in the third quarter, but that acceleration might be driven to a large extent by inventory rebuilding.  The U.S. economy will probably surprise to the upside in the third quarter with growth.  Among other things, the government’s Car Allowance Rebate System (CARS), popularly known as "Cash for Clunkers," should show up positively in the numbers.  But once the levels of inventories are brought up to their necessary levels, that extra growth will not be present in the following quarter.  And the demand from Cash for Clunkers will cease to be a factor.

All of these reasons warrant caution for the Fed.  Some economists, including Nobel Prize winner and former World Bank Chief Economist Joseph Stiglitz, have highlighted the risk of a "W-shaped” recession/recovery scenario, and have even suggested the need for another stimulus package.  While that might do more harm than good, this position highlights the dovish bias that the Fed is likely to maintain.

What About the Rest of the World?

China enjoys many degrees of freedom to move its economy forward and has had resounding success in doing so.  It has no debt and more than $2 trillion in foreign currency reserves.  Its banking system is small in relation to the size of its economy, which gives the country a lot of room to expand credit, and the savings rate of its consumers is sky-high.  This leaves China with the capital resources to deploy growth strategies.  Since the largest companies are all government-owned, when the government decides to deploy capital, it gets done swiftly and powerfully throughout the economy, with great effect on growth.

As a result, China’s economy grew at the breakneck annualized pace of 14% in the second quarter. 

Other emerging markets, like Brazil and India, are in similar, though not as potent, positions to move their economies forward. And they are doing so aggressively. India is expected to post on average 7% plus of annual gross domestic product (GDP) growth. 

Emerging economies – those that did not splurge the bonanza of the prior five years of strong growth in commodity prices and other exports — are now in the position of stimulating their economies with easy monetary and fiscal policies.

Massive stimulus packages, the scorching demand growth from capital investments, and reborn consumers in emerging Asia, have combined to rekindle global growth.

Resurgent Growth in Europe

Both Europe and Japan are emerging from their recessions – even though Japan may post a negative growth number in the fourth quarter – and Britain and Italy are lagging behind in the recovery.  But the most important European economies, led by Germany and France, are pulling ahead.

It is understandable that European Central Bank (ECB) President Jean Claude Trichet, recently mentioned that the recovery was uneven in Europe.  Most market pundits took this as a sign that Europe would not be raising rates as fast as previously anticipated. 

However, keeping interest rates low is much harder to do than it is to say.  Unlike the Fed, which has symmetric objectives – promoting economic growth and controlling inflation – the ECB’s only mandate is to control inflation.  The reason for this notable difference in objectives is that the European economy is much less flexible than the American economy, mainly due to its very rigid labor laws and other regulations.

Thus, the Europeans start running into inflationary problems when their economy grows above 2.5%. 

The ECB just raised its own growth forecasts.  Similarly, the Organization for Economic Cooperation and Development (OECD), which comprises the 30 most influential free-market representative democracies, indicated that the global recession is coming to an end much faster then they previously thought, but said that the recovery will rely on massive spending and low interest rates for some time.  The OECD cited the strong rebound in Asian economies as having jumpstarted this global reacceleration.

Because the Federal Reserve will have to err on the cautious side, and because of the institutions’ differing mandates, the ECB will probably tighten monetary policy before the U.S. central bank does. That means the euro and emerging market currencies will keep appreciating against the U.S. dollar and the price of gold will soar.

The protests that will come from time to time from Chin and Russia will be just that: verbal intervention.  They will not resort to sudden changes in the composition of their foreign reserves, at the risk of doing further damage to the dollar.

In fact, China and other countries generate some 90% of their large current account surpluses in U.S. dollars.  But their holdings of dollar-denominated assets are only about 64% of their total reserves.  That means they already consistently sell the difference, and this selling so far has not decimated the dollar.

So do not expect a sudden devaluation of the greenback, nor fear China currency reallocations.

But we can and do expect a gradual weakening of the U.S. dollar to occur next year. 

And as much as we all hate it, we will be able to take comfort in the fact that we avoided a much worse evil: Deflation.

So we are going to remain playing it with gold.  Also, this "currency" play gives us added diversification to the portfolio.

Recommendation:  Buy SPDR Gold Trust ETF  (NYSE: GLD) (**).

(**) – Special Note of Disclosure: Horacio Marquez holds no interest in iShares SPDR Gold Trust ETF.

[Editor's Note: Veteran Wall Streeter Horacio Marquez is the author of Money Morning's hugely popular "Buy, Sell or Hold" series, and is also the editor of the longstanding "Money Moves Alert" trading service.
In a new free report, Marquez has identified a category of stocks he has labeled "rocket stocks," which display key characteristics hinting that they're ready to move. One such characteristic: Heavy insider buying. In fact, one particular sector right now is seeing especially heavy insider buying - and many investors will be surprised to discover just what sector it is, and what companies top executives are buying into. For a free report that details these "rocket stock" plays, and that outlines this torrent of insider buying, please click here.]

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By Horacio Marquez
Contributing Editor
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Intel Corp. (Nasdaq: INTC) is a cyclical company.  That is, its stock does extremely well when the economy is ready to accelerate, and does poorly when the economy decelerates.  So it’s no wonder that last year the stock fell more than 50% from the record-high of $27.78 a share it reached December 2007. However, the company has rallied more than 50% from its Feb. 23 low of $12.08 a share. It closed Friday at $19.64.

So, what’s next?

For starters, Intel beat second-quarter earnings estimates by 10 cents a share, as its revenue climbed 12% year-over-year to $8 billion.  Beating earnings estimates is important, but beating on the top line and showing sales growth is even more important in a recession. The reason: It shows that you can do well in spite of a weak economy.

Like most chip stocks, Intel is an economic leading indicator of sorts – a fact that bodes well for the U.S. recovery. Intel said demand actually strengthened as the quarter moved along.  This is the precursor of a much more vigorous third and fourth quarter, which traditionally is when tech companies perform the best.

Adding more fuel to the fire, Intel increased it sales forecast to $9 billion from $8.5 billion and boosted the outlook for its gross margins to the upper end of the 53%-55% range.

One of the big reasons for Intel’s recent progress is the impending launch of  Microsoft Corp.’s (Nasdaq: MSFT) Windows 7, which has been well received by many analysts.  Upgrading to Windows 7 from Windows XP in an existing machine is quite a task. It requires erasing the hard disk and installing the new operating system and all the other software from scratch. PCs with Microsoft’s latest operating system, Vista, will be able to get Windows 7 upgrades without any sacrificing of files.

This is different from the traditional incremental upgrades, in which many of the older files remained in place, while the upgrade took care of overwriting and deleting the unnecessary old system files and installing the new ones.  For small companies that have outdated technology, this process is too tedious and it is much more expedient to buy new machines with the new operating system preinstalled.

And there are a lot of old machines with outdated software out there in the business world.  It is not uncommon to see five-year old machines that are not capable of running new resource-intensive applications.  To verify my analysis, I called friends in Fortune 500 companies that manage PCs for their own corporations or for top technology vendors.

The feedback was unanimous in that Vista’s complexity – despite its significant features that were attractive to some specific users – made the operating system an overall disappointment to companies.  The operating system lacked the desired stability and increased maintenance costs.  So the consensus was that corporations would be quick to abandon Vista for Windows 7.

And given the complexity in upgrading existing Vista systems, and the old age of the equipment, it makes sense that many companies would seek to replace entire machines altogether.  So we have the old the “Wintel” symbiosis kicking into high gear.

Also, corporations have cut personnel deeply and need to increase the productivity of their now-overburdened workforce.  Some 70% of employees are not satisfied with their current position, given the additional stress and lack of additional pay.  Therefore, upgrading their technology to make their jobs easier is a high priority.

This won’t be too difficult, because companies’ profits have actually grown 23% in the last two quarters.  With Corporate America now having recapitalized, a new technological wave makes all the sense in the world.

Thus, the argument that the demand pickup is just filling the chain and inventory rebuilding, and that we will be disappointed come January does not seem to hold.  In either case, you will see an outperformance of earnings come the next report, so we should use any downdraft to get into Intel stock.

Also, Intel has regained its technological leadership against Advanced Micro Devices Inc. (NYSE: AMD), despite that fact that AMD is doing well in areas where integrated graphics are important, finally leveraging its acquisition of ATI.

With all cylinders firing, Intel is poised to deliver an upside earnings surprise in the third quarter and blow through estimates in the fourth quarter.  Valuation is cheap compared to the Standard & Poor’s 500 Index, considering the rate of growth that Intel is experiencing and expected to deliver both in the short term and well into next year as Windows 7 deployment motivates sales.

The stock is clearly above the 200-day moving average and seems a bit overbought short term.  So do not chase it. But start buying right away, looking to average down over the next 45 days if possible, averaging up until you reach your full position if it keeps running.

Recommendation: Buy Intel Corp. (Nasdaq: INTC) by averaging into the stock over the next 45 days, thus reducing market risk (**).

(**) – Special Note of Disclosure: Horacio Marquez holds no interest in Intel Corp.

[Editor's Note: Veteran Wall Streeter Horacio Marquez is the author of Money Morning's hugely popular "Buy, Sell or Hold" series, and is also the editor of the longstanding "Money Moves Alert" trading service.

In a new free report, Marquez has identified a category of stocks he has labeled "rocket stocks," which display key characteristics hinting that they're ready to move. One such characteristic: Heavy insider buying. In fact, one particular sector right now is seeing especially heavy insider buying - and many investors will be surprised to discover just what sector it is, and what companies top executives are buying into. For a free report that details these "rocket stock" plays, and that outlines this torrent of insider buying, please click here.]

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