Three high-profile Wall Street analysts upgraded Micron Technology, Inc. (NASDAQ:MU) stock in the past few weeks. That’s a rare feat for any stock. It’s especially rare for a stock that had already more than doubled in the previous year.
To review, Goldman Sachs upgraded MU stock from “neutral” to “buy,” Baird boosted its price target from $25 to $35, and Bank of America Merrill Lynch upgraded the stock from “underperform” to “buy.” The round of upgrades has helped push MU to the brink of new 52-week highs.
Why so much faith in a stock that has a nonexistent trailing price-earnings ratio? It’s all about DRAM.
DRAM Dominance Boosting MU Stock
Micron’s strong hold on the dynamic random-access memory (DRAM) market helps it stand out in the memory chip market, especially now that the DRAM market is bouncing back after a disappointing couple of years.
That dominance, along with increased supply and escalating demand, has also allowed it to raise prices on its DRAM (and NAND) memory chips substantially. Micron raised DRAM prices by 12% in January, and Credit Suisse expects the company to raise them by 25% this year.
The rough patch in the DRAM industry caused Micron stock to drop off a cliff for 18 months. From December 2014 to May 2016, MU tumbled from $36.50 to $9.50 — a 74% decline. At $25.50 as of this writing, MU stock has recovered about half those losses, and yet it remains exceedingly cheap on a forward basis, trading at seven times forward earnings estimates.
So value is also part of Wall Street’s sudden love fest with the stock. Cheap semiconductor stocks are hard to come by. Advanced Micro Devices, Inc. (NASDAQ:AMD) has a forward P/E of 45; Nvidia Corporation (NASDAQ:NVDA) is 29 after its incredible 2016 run; and Applied Materials, Inc. (NASDAQ:AMAT) is 13, just to name a few. Meanwhile, Micron is expected to grow sales by 46% this year — more than double the anticipated revenue growth of any of those aforementioned chip makers.
Even better, thanks in large part to its escalating prices, Micron is now profitable again. The company was in the black for the first time in a year last quarter. Things are expected to get much better this year, with analysts forecasting earnings per share of $3.07 in 2017.
Combine the dominance within the memory solutions space, the return to growth and the dirt-cheap value, and it’s easy to see why MU stock has become so highly recommended. It looks good on a chart, too. MU stock currently trades comfortably above its 25- and 50-day moving averages, as it has for most of the past four months.
Now that it’s hitting new 52-week highs, you could wait for the next one-point dip (to $24.50, still above its 25-day average) before buying.
Buy MU Before Earnings
Regardless, I’d pounce on MU stock soon. The company reports earnings again on March 23, and its past four reports have topped consensus estimates by an average of 30%. Another earnings beat could prompt another quick thrust higher; MU jumped from $20 to $23 after its December earnings report.
But don’t take my word for it … listen to what some of the most influential institutions on Wall Street are saying about MU stock. Twenty-three of the 26 analysts who cover the stock now rate MU either a “buy” or a “strong buy”; the other three rate it a “hold.”
That kind of near-consensus is rare. When it happens, it’s best not to argue.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
