Never let it be said that Micron Technology (NASDAQ:MU) stock is a boring name to watch or own.
Coming out of the 2015 computer-memory glut, MU stock ran from a 2016 low near $10 to 2018’s high of $65, only to slide all the way back to a low of less than $29 last month. Fears that the current computer-memory glut could unexpectedly worsen has prompted investors to sell MU stock, ironically creating the very pullback they feared.
Perhaps to some degree the worry was merited. On the flip side, it’s unlikely the computer-memory industry would fall into the same overproduction trap for a third time in just a little over a decade.
Whatever the case, investors looking to assess MU stock will want to consider six of its positive and negative attributes.
3 Pros of MU Stock
The 50% drubbing that MU stock has suffered since it reached a peak of $64.66 in May of last year implies that MU will have problems going forward. But Micron stock’s positive catalysts could enable it to rise further.
1. Market Share
Most investors recognize that Micron is the world’s biggest provider of DRAM (non-storage) computer- memory chips, even though it competes with bigger and better-funded companies like Samsung Electronics (OTCMKTS:SSNLF) and SK Hynix. But even many owners of MU stock may not know that Micron still singlehandedly controls just a little more than half the DRAM market, according to data from CSI Market.
Size matters. Though competition puts pressure on Micron’s pricing power, its size allows the company to set the tone and pace of the computer-memory market.
2. Buying Out Intel’s Share of Their Joint Flash-Memory Venture
While Micron may dominate the DRAM market, it’s a non-factor within the NAND market. Better known as “flash” memory, NAND is the basis of solid-state drives. CSI reports that MU only controls about a tenth of this increasingly important segment.
That may be about to change, however. Micron recently announced that it would be buying Intel’s (NASDAQ:INTC) 49% stake in a NAND joint venture between the two companies.
Commenting on the deal, Micron Technology President and CEO Sanjay Mehrotra said, “The IM Flash acquisition will enable Micron to accelerate our R&D and optimize our manufacturing plan for 3D XPoint.”
3. MU Stock Is Dirt Cheap
Whether the company’s results have already bottomed or are going to worsen, the market has arguably priced in an apocalyptic turn of events that just isn’t likely to take shape. The trailing price-earnings ratio of Micron stock is just 2.8, while the forward price-earnings ratio stands at a similarly ridiculous 4.8. Even if Micron’s 2019 profits are only one-third of their expected level, and Micron stock remains at its current level, MU stock would still be dirt cheap.
3 Cons of Micron Stock
Nevertheless, clearly MU stock has had its share of stumbling blocks over the course of the past few months. The following three problems will need to ease before Micron stock can rebound in earnest.
1. A Memory Glut
It’s not inaccurate to say that the supply of memory chips exceeds the demand for them. However, the current glut is different from past gluts. Prior oversupply problems were the result of overly aggressive production. This one is just as much rooted in slowing demand for computers and smartphones. Apple (NASDAQ:AAPL), for instance, has repeatedly dialed back its orders of iPhone components to reflect waning demand for its flagship device.
Regardless, the glut still has to be worked through.
2. Impending Class Action Suit
In the shadow of the recent rout of MU stock, class action lawsuits against MU are beginning to materialize. Attorneys are looking to argue that the company took illegal, anti-competitive measures that hurt the owners of Micron stock.
Most class-action suits from investors go nowhere, and this one probably won’t either. But it could become a nuisance at a time when MU doesn’t need such a distraction.
3. Analysts Set the Tone on MU Stock
Finally, analysts are all over the board when it comes to Micron stock. BMO just upgraded MU stock, while a Morgan Stanley analyst just cautioned investors that he doesn’t see any rebound by Micron taking shape this year.
Disagreements among analysts are not all that unusual, but Micron stock tends to respond to the latest analyst note. Until most of these pros are willing to repeatedly be bullish on MU stock, the shares will likely fail to gain traction.
The Bottom Line on MU Stock
Making a call on Micron stock is definitely tricky. MU is undervalued, but as long as it’s facing a large amount of doubt — as it is right now — it probably won’t gain much ground.
Still, for long-term investors who can afford to be patient, MU stock is more of an opportunity than a liability. The worst-case scenario is priced into the shares. And the company as well as the industry have gotten quite good at overcoming gluts, often before anyone expects them to do so.
Remember, Gartner analyst Viveca Woods wrote in January of 2016 “Until supply cuts transpire (with Samsung being the key), the market will remain vastly oversupplied as average sales-price erosion is setting up to be greater in 2016.” However, soon after Woods wrote those words, along came the turning point for DRAM prices, helped by rekindled demand (stemming from a wave of next-gen devices) and the very supply cuts Woods was calling for.
If you’re waiting for crystal-clear certainty before buying Micron stock, you’re going to wait too long.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.