Meltdown and Spectre are the names given to two computer processor security flaws.

The names sound gloomy and haunting. Stories published since Wednesday are saying processors dating back 10 years may have those flaws. Shares of Intel INTC, -0.85% , the subject of the flaws, have been battered, while main rival AMD AMD, -2.11% is enjoying a rebound. (Nvidia NVDA, -2.20% , too, is profiting from Intel’s bad luck.)

I am an electrical engineer who understands the matter at hand. There are a lot of “what this means” stories, but not many written for investors. That’s what I aim to do today.

Why not figure out how to make money from this situation? Let us start with a chart.

Chart

Please click here for the intraday chart of Intel. Please note the following from the chart.

• At The Arora Report we bought Intel at $34.01 for the long term. Our subscribers are sitting on a nice unrealized gain. The Arora Report subsequently also gave another buy signal. (Please see “A breakout in this cheap, forgotten stock is powering the Dow Jones Industrial Average.”) Before the market open, we made our subscribers aware of the situation and then shortly thereafter gave a signal to continue to hold the long-term position. We also provided a zone shown on the chart where a very short-term trade could be initiated well in advance of the stock falling in that zone.

• The VUD indicator is the most sensitive measure of net buying or selling in real time. If there is net selling in real time, that is an indication that a stock should fall. When net buying appears after prolonged net selling, that is an indication that selling may be abating.

The chart shows the point where the VUD indicator turned green after being orange for a long time. This was the immediate reason for The Arora Report to give a very short-term buy signal.

• The chart shows how the very short-term trade has already been profitably exited. We call such trades “trade around” positions.

This illustrates a simple strategy that most investors can use to often double their returns. The strategy is to hold on to a good long-term position as the core position and then surround it with short-term positions called trade-around positions.

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Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.

Analysis in advance

Early in the morning when investors were panicking and selling Intel, The Arora Report wrote: “Intel cannot fix the flaw by simply upgrading the firmware. However, operating-systems vendors such as Microsoft MSFT, -1.24% and Apple AAPL, -3.17% have a work-around. In the end, it is not a big deal. ...”

In our analysis, this incident is not likely to have material financial impact on Intel.

Buy Intel

Since this is not going to have a financial impact on Intel, the drop in the stock is likely to be a buying opportunity. At this time our algorithms need more data to determine the buy zone for another trade-around position and also to buy Intel for the long term for those who are not holding it. We will provide the buy zones to our subscribers as soon as they become available. Please note that Intel is an inexpensive stock in this expensive market. It is trading at a forward price-to-earnings (PE) ratio of about 13, much below the overall market’s PE. The stock also has a nice dividend yield of 2.27%.

Effect on AMD

AMD has stated that, due to its different architecture, the probability of these flaws impacting its chips is near zero. On the other hand, Intel claimed that AMD chips also suffer from this situation. To get more insight into the conflicting statements, we look at an independent third party. The credible independent third party in this case is Google GOOG, -2.37% GOOGL, -2.41% . Google discovered the flaws and explicitly mentioned AMD in the list of processors suffering from the flaws.

In any case, AMD will slightly benefit from the situation.

Our analysis is that, at best, AMD will gain about 5% in sales. The stock has already moved up more than that. At The Arora Report we took advantage of the situation and short-sold AMD for a very short-term trade. As a full disclosure the trade has already been closed profitably.

Investors need to know that AMD is a high-beta stock, is fundamentally very expensive and mostly moves on sentiment. For this reason, at this time, it is a good trading stock but not a good very long-term investment unless something material changes. At The Arora Report we have completed several short-term trades on AMD but for long-term positions in the semiconductor sector, our positions include Intel, semiconductor ETF SMH, -1.51% , Applied Materials AMAT, -0.33% , Maxim Integrated Products MXIM, -1.19% , Qorvo QRVO, -1.75% and Analog Devices ADI, -0.50% .

Cloud services

Cloud services are also vulnerable to these flaws. It appears that Amazon AMZN, -1.78% and Google have already installed patches to protect their servers. There should be no negative impact on those stocks.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.

Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.