2018 was a terrible year for some technology stocks. Micron (NASDAQ:MU) and Nvidia (NASDAQ:NVDA) are the slow-mo and mo-mo examples in the sector. MU stock is almost always the value trade, while Nvidia stock was the fast runner of the bunch.
With the exception of Advanced Micro Devices (NASDAQ:AMD), most tech stocks were beaten down hard. In fact, the VanEck Vectors Semiconductor ETF (NYSEARCA:SMH) fell 11% in the past 12 months.
Investors have been fickle with tech, especially Micron stock. Last June they were in a race to buy it at $60 per share. By Christmas they had cut it in half. They did both with conviction and both extremes are wrong. Somewhere in the middle lies the truth. Meanwhile, the fundamentals had not changed much between the two time periods.
Last week, MU was upgraded and the stock rallied sharply off the bottom. This morning it falls on a downgrade of Western Digital (NASDAQ:WDC). The analyst cited reasons that included their worries over the WDC dividend. This sounds specific to that company, yet once again, MU stock looks to indirectly suffer today on that headline.
Last week, Micron stock had a great price action, as it was able to rise above the Christmas mega-dip neckline to $29 per share. So now the onus on the bulls is to hold it so they can establish it as forward support.
Therein lies the opportunity with MU today, but it is longer term than just then next few days of trading. Micron stock is one to own for the long term on the thesis that tech is here to stay for decades to come. We have a few suppliers to that technology and Micron is one of the successful ones that will prevail once this crisis of sentiment abates. Investors should own it for the long term.
How to Approach MU Stock Today
On the way down in December, the smart money didn’t wait for others’ blessing of the stock to go long. Value spoke for itself. I was lucky to sell puts into the fear to generate income and reserve the opportunity to own it even lower than it was then. But now the opportunity to buy into a long-term position is also still viable.
Last week, the masses scampered to capture the upside potential and MU stock rallied 10%, which takes away from the easy money off the extreme Christmas lows. But it is not too late to get in, especially thanks to this morning’s negative price action in sympathy with WDC.
MU is a quality company with proven management and a healthy business operation. It is not a fad. It has a sturdy footprint in technology and our lives are now more dependent on it than ever. There is almost nothing that we do that is not connected to the cloud one way or another.
Amazon (NASDAQ:AMZN) moved our shopping online and our data onto its AWS. Netflix (NASDAQ:NFLX) changed the way we consume media and liberated us from the TV room. The future is clearly digital and MU will remain a part of it.
Fundamentally, Micron stock has a ton of value as it trades at a trailing price-to-earnings ratio of 3. While the stock was in free fall, the experts feared that it would be a value trap. MU’s trap if at all is usually a temporary one. Eventually, the experts realize the discrepancy and buy it up once more.
There are circumstances of inventory that affect prices and margins for MU and its competitors do raise additional fears. But this happens occasionally and management knows how to deal with it.
This time, the economic war between the U.S. and China contributed to the problems. The tariff wars definitely changed order flow and caused exaggerated fear levels. Consequently MU stock fell 50% from its high of $62 per share in only six months.
Technically, Micron stock is not likely to rocket higher without dips. This morning is a prime example of dips that are necessary to solidify the levels just passed below. Rallies need periods of consolidation, or else they become frothy and too ginger to hold.
Now that the overall market sentiment is improving, these MU stock dips will be buying opportunities and buyers will step in to support the stock.
Click here and enjoy a free video and more of my market thesis and get an ongoing free copy of my weekly newsletters. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
