Micron Technology, Inc. (NASDAQ:MU) was undoubtedly one of the star performers of last year — and even of this decade. After being left for dead by media pundits and several long-time shareholders, MU stock pulled off the unthinkable. When the dust settled on 2016, Micron stock gained more than 60%. In contrast, the benchmark exchange-traded fund Technology SPDR (ETF) (NYSEARCA:XLK) took in only 20%.
What made the sudden shift in fortune more astounding for MU stock was that early indications were terrible.
In January of last year, Micron stock registered a disconcerting drop of 23% in the markets. A month later, MU stock was still mired in choppy and generally horizontal trading. It wasn’t until the middle of the spring season that shares finally got their wings. Since then, it has been a largely vertical ride.
Further evidence comes courtesy of Wall Street analysts. As Micron stock continued to pull off surprise after surprise, an increasing number of bulls got on the bandwagon. Earlier this month, we saw a small but remarkable change. For the first time in a long time, MU stock no longer had a rating less than hold. Currently, the vast majority of analysts covering the company rank it either a “buy” or “strong buy.”
But this leaves astute investors in a quandary. Do they bite now on Micron stock and avoid the regret of letting a proven rally slip away? Or do they stick to their guns and eliminate the risk of holding what could be a very big bag?
Is MU Stock Too Hot to Handle?
Certainly, there are valid concerns about going too deep with Micron stock. As InvestorPlace contributor Richard Saintvilus notes, MU has lost some momentum recently. Although shares are up more than 12% year-to-date, the company is down 0.49% over the last 30 days. Throughout February, Micron stock has trended in a bearishly tilted channel. Obviously, that’s not what you want to see from a comeback king.
Furthermore, MU stock is currently underperforming the broader technology sector. The XLK is up more than 4.8% over the last 30 days. And competitor Advanced Micro Devices, Inc. (NASDAQ:AMD) shows no sign of stopping its magnificent rally. AMD is up an incredible 17% in the same time frame. If it doesn’t take a breather soon, we may have to nickname it bitcoin. In all seriousness, if it weren’t for AMD, Micron stock would have been Wall Street’s tech darling.
And to be totally fair, MU stock doesn’t really look that great with semiconductors specifically. For instance, the Market Vectors Semiconductor ETF (NYSEARCA:SMH) is up over 7% for the year, and 2% in the same 30-day period.
We have to remember that Micron shareholders have already witnessed this song and dance before. The years 2013 and 2014 were phenomenal, averaging returns of nearly 145%. Then 2015 happened, and the markets cut investors’ portfolios by well more than half. And as we know mathematically, if you take a 50% loss, your breakeven is a 100% gain.
Micron Stock Still Has Plenty to Give
Still, I love what MU stock is cooking up. This isn’t a rally based purely on technical momentum and human emotions. InvestorPlace writer and IPO Playbook Editor Tom Taulli notes that “MU has done quite a bit to transform its business, such as with disciplined cost cutting. The result is that the company continues to crank out juicy cash flows. In the latest quarter, they came to $1.1 billion, up $200 million on a quarter-over-quarter basis.”
In addition, MU has made substantive changes in its business strategies. The most obvious shift is reducing the company’s leverage towards the personal computer segment. Semiconductor products for that sector account for very little of Micron’s top-line sales.
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This has translated into “offense-minded” moves, such as acquisitions of smaller rivals. It also implies stepping into popular — but contested — territory like mobile platforms and cloud computing.
But with demand for such products improving after an extended supply glut, MU stock has the wind on its back.
Also, from a technical standpoint, it’s not entirely fair to classify Micron stock as a dud, either. Historically, MU starts weak and gradually becomes stronger. Between 1990 through 2016, returns a month after the new year average a little more than 7%. Two months after the new year, they average 13%. By the end of the year, investors can expect a profit of 33%. So don’t write off Micron stock just yet!
I definitely understand the concerns of the momentum approach of buy high and sell higher. That said, there are solid reasons for investors to trust MU stock. It has had a rocky time, but the confluence of internal and industry fundamentals, as well as technical bullishness, is too much to ignore.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
