Despite significant concerns about how the markets would absorb the unprecedented administration of President Trump, the anxiety was largely unfounded. Several market sectors, including the volatile technology and semiconductor arenas, have experienced bigly returns. A shining example is Micron Technology, Inc. (NASDAQ:MU). Mostly left for dead in 2015 when MU stock tumbled more than 59%, shares stormed back last year, gaining 53%.
Of course, much more work is required. To come back to parity from a 59% loss, a shareholder would need a 144% return on investment. Therefore, in all fairness, the rally of 2016 was mostly beneficial for Micron stock speculators, not long-time investors.
Nevertheless, recent chart action from MU stock is encouraging for all vested players.
On a year-to-date basis, Micron stock is up 22%. This figure puts Micron stock in the lead against several names in the chip-making sphere. For instance, Applied Materials, Inc. (NASDAQ:AMAT), which has far more stable financials than MU stock — is up 16%. Micron also beats out Advanced Micro Devices, Inc. (NASDAQ:AMD), which is up “only” 8.5%.
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Some of the heavy weights, including Intel Corporation (NASDAQ:INTC) and Nvidia Corporation (NASDAQ:NVDA) are actually negative for the year.
Should investors brace for potential damage control for Micron stock?
MU Stock May Fight Some Industry Headwinds
The idea of a corrective downside occurring is completely logical. InvestorPlace contributor Will Ashworth struck a cautious tone with Micron stock, arguing a lack of “easy money” growth potential. He also points out an increasing number of analysts going bullish on MU stock. This trend combines with the fact that fewer analysts are sitting on the fence. However, this may also suggest that people are buying into Micron stock after the positive news has long since passed.
I don’t disagree — the easy money has likely been made, mostly because I speak in hindsight. But the underlying catalysts that sparked the initial rally in MU stock are still valid. First, the computer chip supply glut negatively impacting all semiconductors has definitely eased; otherwise, we’d be having a different conversation. And Micron’s dominance of the dynamic random-access memory (DRAM), as reported by InvestorPlace contributor Chris Fraley, will drive momentum further.
To be clear, I’m on the bull train for Micron stock. My biggest concern, though, is the recent slowdown in the underlying sector. This is not a “panic mode” situation; rather, it’s a tap on the shoulder moment. If I’m going to take a risk on a semiconductor company, I’d like to go with the stronger candidates. MU stock certainly qualifies.
Micron Stock Is a Well-Balanced Tech Play
The Altman Z-score, which aggregates five metrics to gauge a company’s financial stability, is illustrative here. Virtually no semiconductor company was left unfazed by the demand depression in the industry. Therefore, most everyone took a hit. It’s where they absorbed the damage that truly matters.
As we can all agree, some problems are worse than others. For Micron stock, shares fell into the distressed zone in 2016 because of the falling earnings power of its assets. This was followed by a depression in the value of the assets themselves. As expected, this was a similar trend witnessed by many other semiconductors.
What makes Micron a better look than its bargain-bin competitors is that the earnings power against assets has substantially improved. Its most recent second-quarter report indicated that the metric in question jumped 331% against Q1 results. Because of this improvement in particular, MU stock transitioned from the distressed zone to the gray zone.
I believe that’s the reason why Micron stock is outperforming its competitors right now. It’s not just for the fact that Wall Street loves the chipmaker’s forward guidance and related headlines. MU also has more palatable weaknesses, and these are areas that are being addressed. This is not a perfect world, but Micron is giving a perfect response to its challenges.
Will MU stock face some volatility in the nearer-term picture? I’d be shocked if it didn’t. However, Micron is an organization that is better primed for future success than many of its competitors. And while its 53% jump in 2016 is no joke, it wasn’t the fireball that AMD was. So maybe the easy money is gone for MU, or maybe it’s just beginning.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
