For the last year, the shares of memory chipmaker Micron Technology, Inc. (MU) have been cut in half, but the worst may be over. Keep in mind that it appears some type of bottom has been forming since January, with Micron stock trading in a range of $10 to $11.
More importantly, for those investors who like following the charts, there may now be a breakout.
Several Wall Street analysts think Micron stock is worth another look. In fact, the latest upbeat report came out today from Robert W. Baird & Co.’s Tristan Gerra, who boosted his target on Micron stock from $12 to $18.
The rationale: “Samsung may shift meaningful capacity from DRAM to NAND this second half … Near term, PC units are rebounding above expectation — off a dismal 1Q — while the China smartphone market is also rebounding.”
Adding fuel to the fire, analysts from Raymond James upgraded their rating on Micron stock from “outperform” to “strong buy” and issued a $17 target last month. A key reason behind the upgrade is that there is a transition from disk-based solutions to flash memory chips. Raymond James noted that this is why there has been weakness with companies like Seagate Technology PLC (STX).
This also helps explain the recent boost in Applied Materials, Inc. (AMAT). A couple of weeks ago, the company announced a strong quarterly report, and the main driver was the NAND business. Since the report, AMAT has gained about 20%. Consider that NAND technology has higher margins than traditional DRAM offerings.
All of this should be good news for Micron stock. After all, the company has been investing heavily in next-generation 3D NAND storage technologies and has a strategic relationship with Intel Corporation (INTC). MU also plans a major rollout — during the next two quarters — of its Crucial chips. Then there is the ramp in the fab expansion in Singapore.
Bottom Line on Micron Stock
Granted, MU stock is not without some considerable risks.
Let’s face it: The chip business is extremely volatile. Even a small delay in a few orders can mean a big-time miss on earnings. For example, during the latest quarter, MU reported a grueling 30% plunge in revenues and posted a net loss of $97 million, down from a profit of $934 million in the same period a year ago.
But then again, the valuation on MU stock still looks fairly reasonable, with the price-to-earnings ratio at about 14X. This is in-line with other companies like INTC and Western Digital Corp (WDC).
Interestingly enough, analysts at Mizuho Securities recently crunched the numbers of MU stock and came up with a book value of roughly $15 a share. In other words, the current price-to-book multiple is less than 1X! By comparison, STX trades at nearly 3.8X.
But again, the key factor with MU stock is the potential for a nice boost from the NAND business. What’s more, this could happen fairly quickly, as hinted already from the results of AMAT.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
