Micron Technology, Inc. (NASDAQ:MU) is a tech stock that trades like an industrial.
Its boom-and-bust past has investors mistrusting its stellar performance. The price-to-earnings multiple of 6.9 is just slightly higher than that of Ford Motor Company (NYSE:F).
MU’s financial performance, however, is anything but Ford-like. The year-over-year growth rate in its most recent quarter was nearly 70%. It took nearly 40% of its revenue to the net income line. Operating cash flow for the 2017 fiscal year came in at over $8 billion. Its debt levels are falling steadily.
What is not to like?
Volatility, for one thing. The shares took a sickening plunge of nearly 20% as recently as November and were sitting very close to where they were three months earlier as trade opened Feb. 7. Then there’s the breakup of its joint development plans with Intel Corporation (NASDAQ:INTC).
Pounding the Table
Analysts continue pounding the table for Micron shares, so far without effect. An enormous 25 of 31 analysts following the stock have it on their buy lists, expecting it to earn over $10 per share during the current fiscal year.
Our Vince Martin is in this camp, saying that you should buy MU, even while admitting it is as cyclical as Caterpillar Inc. (NYSE:CAT), the tractor maker. The pattern is that prices get strong, new suppliers come in, supplies go up, and prices are crushed.
But that fall hasn’t happened yet. Demand for chip memory is leaping ahead. Client devices have shed the spinning aluminum hard disks of the past, with their moving parts and fragility. Cloud companies are adding chip drives because of their faster response times, compared with disk memory. New markets like the Internet of Things, especially for cars, are on the horizon.
Even the Intel news isn’t that bad because Intel is only going to be competing in NOT AND (NAND) memory, which most consumers know as flash memory. It is not yet a factor in dynamic random access memory (DRAM), the most common type of memory chip.
Elvis in the Building
Micron also has firm leadership in Sanjay Mehotra, who joined the company last May after building SanDisk from a 1988 startup to a $19-billion Western Digital Corp (NASDAQ:WDC) purchase.
Mehotra has been turning over his executive suite, bringing in younger executives to replace the generation of Steve Appleton, the legendary former CEO who died in a 2012 plane crash.
Mehotra has also been firming up the company’s NAND portfolio to protect against an Intel entry in the market, and working to move “up the stack” in memory, becoming not just a supplier of chips but complete subsystems.
While previous MU booms petered out as markets became saturated, Mehotra is also going after new markets, like oil exploration, autos, medical devices and financial systems, creating new markets where Micron has control over the final product.
The Bottom Line on MU Stock
Micron has not been downplaying its improvements. It is raising earnings guidance and predicting strong pricing. The company’s two competitors are also reporting strong results.
Bears keep looking ahead, now predicting a downturn in pricing, and thus Micron’s stock, starting in 2020. But its moves into subsystems should cushion that, and Micron shares held up well under the volatility of early February.
My view on technology is that you should always bet on the jockey more than the horse. I believe in Sanjay Mehotra. I think so long as he’s at the helm, your Micron investments are safe. And at seven times earnings, it’s cheap as chips.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance, The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in F.
