The last couple of weeks have been strange in the market. We have seen a reversal in the stock performances of the sectors with energy and financials flipping the script to lead the way while tech and consumer discretionary stocks have been among the worst performers. It also seems like the top-rated stocks, from a fundamental perspective, have been underperforming the lower-rated stocks.

To give you an idea of what we’re talking about, I put together a table of 50 of the most widely followed stocks on Seeking Alpha. I then took those 50 stocks and ran them through Investor’s Business Daily’s rating system.

Looking specifically at the EPS ratings and the SMR ratings, the two ratings that are fundamental ratings, I isolated 11 stocks that really stood out. The companies had an EPS rating over 80 and an SMR rating of an A. Theoretically, these 11 stocks have shown the best fundamentals results of the 50. I also isolated six stocks that were at the bottom of the ratings, EPS ratings below 40 and SMR ratings of a D or E. In theory, these stocks are the weakest stocks from a fundamental perspective.

I took these 16 stocks and looked at the returns from February 8 through February 25. You can see the results in the table below. The color-coding is something I use to identify positive ratings versus cautionary ratings. Now, look at the returns of the 11 stocks with positive fundamental ratings. All 11 lost ground during this 13-day trading stretch. Now, look at the six stocks with cautionary, or poor, fundamental ratings—five of the six gained ground during the same stretch.

Looking at these results and trying to make sense of them, there was one stock that stood out when I looked at the fundamentals and the charts for each company, and that company is Advanced Micro Devices (AMD).

The Numbers behind the Ratings

Obviously the first thing that stood out about AMD was the fundamental ratings. The company has seen tremendous earnings and revenue growth in recent years and the growth is expected to continue in the years ahead.

The company has averaged earnings growth of 94% per year over the last three years and earnings were up 63% in the fourth quarter of 2020. Analysts expect earnings to grow by 144% in the first quarter of 2021 and 52.7% for the year.

Revenue has grown at a rate of 17% per year over the last three years and it jumped by 53% in the fourth quarter. Current estimates are for a 79.4% jump in Q1 revenue and an increase of 38.4% for 2021.

Looking out to 2022, current estimates are for earnings growth of 28.4% and revenue growth of 15.6%.

In addition to the earnings and revenue growth, the profitability measurements for the company are above average as well. The return on equity is at 57.4% and the profit margin is at 25.5%.

The current valuations for AMD are higher than most semiconductor stocks. The trailing P/E is at 39.9 and the forward P/E is 49.2. The price to sales ratio is at 10 and the price to book ratio is at 17.10. All of those figures are higher than the industry average.

Sideways Action over Last Six Months has Allowed a Trend Line to Catch Up

If we look at the weekly chart for AMD over the last three years, the current trend higher started in September 2019. If we connect the lows from March and June of last year, we get the prevailing trend line. The line is currently just above the $75 level and looms as support for the stock.

The 50-week moving average is just below the trend line and it could act as a secondary layer of support. The recent move lower has brought the overbought/oversold levels down out of overbought territory. The stochastic indicators are the lowest they have been since early November and they look like they will move below the 50 level next week. The indicators haven’t been in oversold territory since late 2018, but they saw significant lows in March and in September 2019.

The 13-week RSI is just above 50 at this point and is close to the low from June. The RSI has only dipped below the 50 level on a few occasions over the last two years.

With the two layers of support, the trend line and the 50-week moving average, along with the overbought/oversold indicators being so low, we could be looking at a buying opportunity on the stock.

Bearish Sentiment is Growing

Short interest on Advanced Micro Devices has been growing rapidly in the last six months. On October 15, there were 26.7 million shares sold short. Flash forward to February 12 and there are 80.5 million shares sold short—more than tripling in four months. The short interest ratio is only at 2.42 because the stock averages over 33 million shares of trading volume each day.

Analysts have been pretty consistent on their ratings of AMD. There are 37 ratings on the stock at this time with 20 “buy” ratings, 14 “hold” ratings, and three “sell” ratings. Three months ago those figures were 20/15/2. While there hasn’t been much movement from analysts, the group as a whole doesn’t seem to be as bullish on the stock as they are other chip stocks. The ratings for Micron (MU) are 28/5/1 and for Analog Devices (ADI) they are 19/4/1.

When you combine all of these factors—the fundamentals, the chart, and the growing bearish sentiment, it looks like AMD is primed for a rally. The stock is currently trading in the $85 area with support in the $75 area and also in the $73 area. Earnings and revenue are expected to come in strong again in the first quarter and that report should come out in the second week of April.

The way the chart is setting up, I can see the stock making a move similar to what we saw last July and August when the stock rallied over 50% in only a few months. The rally might not produce a return quite so high this time, but I can see the stock moving well above the $100 level in the next few quarters.