Broadly speaking, tech has been a bullish sector for a while now. The challenge is, not every tech company is an easy ride higher.
But that’s not the case for Micron Technology, Inc. (MU).
In the past three-and-a-half years, MU stock is up 345%.
The question for Micron is can MU stock maintain this kind of pace moving forward or has it become fully — if not over — valued?
Recently, Micron stock has taken a hit because rival SanDisk Corporation (SNDK) just lowered guidance for its coming quarter because of soft NAND memory demand. That and the news that Samsung (SSNLF) has gain more market share in the NAND space, which means margins will be lower for competitors and there’s less market to grab.
But before we dig too deep into the market view of Micron, you should understand the business. While MU is a semiconductor chip maker, it focuses on memory, not processors. So, Micron isn’t in the same business as say, Intel Corporation (INTC) or Advanced Micro Devices, Inc. (AMD).
Micron is a major player in memory — one of the Big 3 in the DRAM chip market with Samsung and Hynix Semiconductor America Inc. DRAM chips make up about 68% of Micron’s chip business. DRAM stands for Dynamic Random Access Memory. Because DRAM can hold more data than SRAM (Static Random Access Memory) and because it’s significantly less expensive to make, DRAM is the most common type of memory found in personal computer systems. Simply put, its a traditional hard drive for desktops and laptops.
Also, because this is a relatively mature market, the players aren’t shifting a great deal. So, while there’s only moderate growth opportunities in chip-making, it’s a solid base of business.
In NAND memory chips, the field is a bit more dynamic. Here there are two more players that cap off the Big 5 NAND players, adding SNDK and Toshiba. MU controls just under 30% of market share in this sector.
But NAND is where the growth is because NAND is a type of non-volatile storage technology that doesn’t require power to retain data. Basically, this is what most people know as flash memory; the memory cards that we use in mobile phones, digital cameras and USB drives.
Because of the growth in mobility computing, flash memory has become a dynamic business, and there’s a lot of competition as mobile devices get more powerful and smaller with every iteration.
Since the chip market is less predictable than its more established DRAM predecessor, analysts have a hard time pinning down expectations from quarter to quarter. The chip market has variables like the health of local economies; pricing and attractiveness of new devices; and availability of those devices.
But the upside to all this from MU stock’s perspective is it has a foot in each sector and has a secure DRAM base to ride out the turbulence in the NAND sector. As long as Micron continues to be competitive and keeps pace with the growth of the industry, MU stock has potential to continue its impressive growth path.
Micron has suffered because of a transition to a new manufacturing process for its DRAM chip set, as well as softness in the NAND market pricing, which should stabilize in coming quarters.
Neither issue has scared analysts away — of the 34 analysts that cover MU stock, 26 rate it as a “buy” or “overweight,” and only one rates it a “sell.” Given the volatility of NAND sector and the slow recovery of the global economy MU gets a B from Portfolio Grader.
MU stock is cheap relative to its industry competition on both an earnings and cash flow basis. Bottom line: If you’re looking for a tech stock that is well positioned for the next three to five years, Micron is a great choice.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
