After rallying to a two-month closing high last week, the semiconductors have run into a brick wall. Related names have been selling off following several negative analyst notes regarding DRAM and NAND prices.
In the wake of that, here are three tech stocks that are showing some upside.
There is absolutely no debating that all three of these stocks are value plays. However, some will go so far as to call them value traps that will only get cheaper and cheaper over time.
I will agree that there is a risk of further weakness in the near term, but the bargain opportunities these stocks are offering right now is tough to ignore given the potential for longer-term upside.
Low-Cost, High-Upside Tech Stocks: Micron (MU)
Micron Technology (NASDAQ:MU) was particularly highlighted in the reports as a stock that will be hurt by lower memory chip prices. In fact, analysts from Baird, Morgan Stanley and Deutsche Bank all expressed concern.
MU has fallen to its lowest level since February as a result of those comments, and with it now up only 8.7% in 2018, it has officially dipped into a bear market. But while the chart is breaking down, fundamentally the stock is flat out cheap.
Based on trailing 12-month earnings, MU is trading with a P/E ratio of 5. Assuming chip prices do fall, the company’s earnings would also likely fall to around $10.25 by 2020. Even at that level, the stock would trade with a P/E of 4.4.
The issue investors have is that earnings may have peaked in the short term. However, even if the company can eke out a small gain in earnings in the coming years, the stock should trade with a minimum P/E of 8.8 — that puts the share price at double what it is today.
Low-Cost, High-Upside Tech Stocks: Intel (INTC)
Intel (NASDAQ:INTC) has also been trending lower since hitting a high in June. The stock hasn’t quite touched bear market territory yet, and I actually believe it should be able to avoid that fate altogether.
Why? Because unlike Micron, INTC’s earnings should continue growing annually, albeit at a slower pace. The stock is also unique in that it pays a solid 2.5% dividend.
With the shares cheap at a forward P/E of 11.05 and a PEG ratio of 1.1, the current weakness may be presenting an opportunity.
Low-Cost, High-Upside Tech Stocks: Lam Research (LRCX)
Finally there’s Lam Research (NASDAQ:LRCX), which is a mix of Micron and Intel. Earnings are expected to dip in fiscal 2019 but should regain their double-digit growth trajectory soon thereafter, putting the stock’s forward P/E at 8.8 and its PEG ratio at just 0.5.
LRCX is following a similar pattern to MU on the chart as it trades at its lowest level since February. But with a solid dividend yield of 2.6% — higher than INTC’s — it pays to hang on through the weakness.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.
