Barron's Tech Trader Daily highlighted a note from Bernstein Research on Oct. 7. The note suggested that Bernstein's survey of the buy side (the folks who manage money like mutual funds and hedge funds) showed that Intel (INTC -9.74%), Apple (AAPL -0.28%), and IBM (IBM -0.92%) were the "top three short picks."

I'd like to dig a little bit deeper into what a potential short case for Intel would look like, and whether investors should consider hopping on the "short Intel" bandwagon.

The short thesis in a nutshell
One lesson that I learned the hard way early on in my investing career is that for a short sale to work, there needs to be a pretty well-defined catalyst to drive the stock price down. Such catalysts can be sector-related (hitting most, if not all, companies in a specific industry) or they can be company specific.

The well-known short case for Intel looks something like the following: 

  • Intel generates the majority of its revenue and profit from the sale of microprocessors for PCs (about 63% last quarter).
  • PC sales are on the decline as computing shifts to alternative form factors such as smartphones and tablets.
  • A potential major decline in Intel's PC chip sales is unlikely to be made up by any potential success in the mobile chip space (and such success is hardly guaranteed).

In other words, a bet on Intel is a bet that the PC market will stabilize and, perhaps, grow slowly over the coming years. A bet against Intel is a bet that the PC market is ultimately in an unstoppable secular decline.

Well, that's strange
The Nasdaq provides data about how heavily shorted a particular stock is. The survey data from Bernstein Research suggests that the buy-side thinks shorting Intel at these levels is a good idea. Does the short interest data show that they're putting their money where their collective mouths are?

According to the data, the number of shares of Intel that are shorted has come down fairly substantially over the last year. Indeed, over the past year, the short interest seemed to peak on Oct. 15, 2013, with approximately 255.3 million shares shorted, and has decreased pretty steadily since then.

In fact, as of the Sept. 15, 2014, settlement date, the short interest in shares of Intel is the lowest that it's been over the past year, at just 124.6 million shares shorted.

It doesn't look like investors are exactly hopping on the bandwagon at this time.

Shorting against a growing business, large buyback, and reasonable valuation seems risky
Intel has already put fairly compelling revenue and earnings guidance in place for the rest of the year. Revenue is set to hit a record $55.7 million based on the company's guidance that revenue would increase 5% this year. Full-year gross margin looks healthy, too, at 63%.

Further, Intel announced that it was putting into place a $20 billion share repurchase program. This is good for approximately 12% of the 4.95 billion shares outstanding, and it should introduce some buying pressure on the shares.

Finally, it's not as though Intel trades for a nosebleed valuation; it's trading at about 16.6 times trailing-12-month earnings and, if analyst consensus is correct, about 15.28 times full-year 2014 earnings.

OK, but I really think Intel is going to crater; where's my catalyst?
It would be a mistake for me to tell you that Intel is absolutely, positively, undoubtedly going to go up; bad things can, and often do, happen.

The catalyst that I would watch for if I wanted to short the stock would be what Intel presents at its investor meeting on Nov. 20. CFO Stacy Smith will, as he does each year, issue his revenue, margin, and operating expense guidance at the event.

Analyst consensus is calling for Intel to generate $56.83 billion in revenue (about 2.5% growth from consensus estimates for 2014) and $2.31 in profit during 2015. If Intel guides worse than this, then I would expect a sell-off in the stock. If it meets or exceeds these expectations, then a short probably won't work unless Intel has to revise guidance down as 2015 progresses.

Foolish bottom line
While it may be tempting to call Intel a short as the stock is trading near multi-year highs and is exposed to a relatively uncertain PC market, it's not a trade that I'd want to make. In fact, as my disclosure clearly indicates, I'm happy to take the other side of that bet.