Earlier this month when we learned about the new tariff rates that the U.S. imposed on China, I shared a write-up warning about Micron (NASDAQ:MU) being directly in the line of fire of that economic war.
Since then, MU stock has fallen 15%, so it’s now closer to finding a bottom. Micron is not alone. The VanEck Vectors Semiconductor ETF (NYSEARCA:SMH), Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA) all fell the same. Only Advanced Micro Devices (NASDAQ:AMD) held well.
I never assume that I will find the perfect place to buy a stock, but in this case MU stock seems to be at a point where there’s less risk below than there is upside above.
That’s at the heart of today’s thesis — this too shall pass. The U.S. and China will eventually come to some terms that are not disastrous. There’s just too much at stake for everyone involved, and the consequences are global. The leaders understand this, and once they get over their egos, they will move forward with terms that allow for business to continue as is, or close to it.
In that case, Micron could rally with fundamentals below to support the bullish effort and recover some recent glory.
MU Stock By the Numbers
The fundamentals of Micron are exceptional. This is a leading technology provider that sells at a very low trailing price-to-earnings ratio of 3. While some experts on Wall Street call it a value trap, but that’s the same value that serves as a stabilizing base. Those who already own the shares are not scared out of it.
In other words, Micron stock is in strong hands, so it cannot fall too far when it’s this cheap. The only way that would happen is if the whole market collapses from here. The current macroeconomic conditions do not support this doomsday theory.
The demand for technology is increasing at an exponential rate. This is a trend that will not reverse. In fact, it will continue to accelerate. Technology begets more technology, and Micron is one of the few companies that supplies the brains of the operation.
With the advent of easy connectivity — like 5G, for example — almost every human on the planet will soon hold a device connected to all the tech around us. So demand for electronic components and services like the ones that MU provides will continue to be strong regardless of how political leaders squabble.
Meanwhile, for the short-term, there are important technical lines to know.
In my earlier writeup, I noted the fact that MU stock has fallen into a support zone. The price action has not yet been bullish, so clearly the upside triggers are far from triggering. But the support zone is still intact and it extends through $32 per share. As the negative headlines grow more stale, the MU buyers will regain the confidence to reset their positions.
The price range is tightening and this builds energy in the stock. Eventually this has to resolve itself in a breakout. If markets in general hold up then Micron will more likely explode up than down.
The important line for bulls to hold is $32 while they attack the descending trend line of lower highs. A breach of either of those would bring a move in that direction. So I get long the shares through stock or options and set a stop loss that fits my risk profile.
In this case, MU is cheap enough to make it so that this trade can turn into an investment without dire consequences. So even if this short-term potential breakout fails I can hold it for a longer time frame.
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.