Micron Technology, Inc. (NASDAQ:MU) is finally showing some strength after struggling over the past few months. MU stock has gotten some mojo back after being punished despite meeting earnings estimates. With shares looking cheap fundamentally and solid technically, I expect Micron to be a solid performer over the intermediate term. Time to buy the dips on this chip stock.
Certainly MU stock is cheap from a valuation perspective. Micron sports a current P/E ratio of just 6.5 and a forward P/E ratio under 6. Compare that to the nearly 16 P/E of industry leader Intel Corporation (NASDAQ:INTC) and it is evident that Micron has plenty of potential upside.
One of the main reasons Micron has always carried such a low multiple was the fear of the commodity effect on chip prices. Yesterday Stifel analyst Kevin Cassidy raised his price target from $95 to $101 for MU, citing improved NAND demand and higher DRAM prices. This should help relieve some of that fear for semiconductor stocks and give a boost to earnings and a bump to the P/E multiple, both a positive for MU stock.
Micron held the crucial $47 support level which was highlighted in my previous article on MU. Shares are also back above the widely followed 100-day moving average of $48.23, which should also lend additional downside support.
While MU stock may be getting a little overbought to the upside as it approaches $54, I think any further pullbacks should be minor. Look for the $47 level to be a floor in MU for the next several months.
So to position to be a buyer on MU stock on weakness, a bullish put credit spread makes sense. We can structure the trade to coincide with the key $47 support level and also get paid upfront for the obligation to be potentially own MU stock at a lower price.
MU Stock Trade Idea
Buy MU July $44 puts and sell MU July $47 puts for a 60-cent net credit.
Maximum gain on the trade is $60 per spread with maximum risk of $240 per spread. Return on risk is 25%. The short $47 strike price is structured at the major support level and provides a 12.9% downside cushion to the $54.01 Tuesday closing price of MU stock.
Tim may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his option-based strategies can go to https://marketfy.com/item/options-and-volatility.
