I’m an active participant in stock market forums, but even I was surprised to see how much bearish sentiment and venom was directed at Micron (NASDAQ:MU) stock in the second quarter of 2019 as the tariff conflict escalated. From the beginning of May through the last week in June, MU stock fell more than 23% while the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) fell 11%.
Negative social media sentiment spiked in the period, as the number of comments overall tripled, according to data tracked by TipRanks.
Now, with Micron preparing to report its next quarterly fiscal results on Sept. 26, I’m starting to see message-board gurus bragging about their short positions in MU stock lately. As I see it, this is a risky bet; if anything, the Micron stock price could be setting up to reclaim the $60 level, where it traded twice last year.
Don’t Obsess Over the MU Stock Price
Stock-chart analysts tend to be bothered by MU stock’s price action in 2019: they’ll either say that it’s too close to its 52-week high to buy now, or else they’ll complain that Micron stock has had difficulty breaking above the $50 resistance level.
Rather than get caught up in price-action minutiae, I would suggest that prospective investors look under the hood: as Warren Buffett famously once said, price is what you pay but value is what you get. As far as value goes, MU stock has an ultra-low trailing 12-month P/E ratio of 5.2, which is absolutely outstanding among semiconductor stocks.
Moreover, the trailing 12-month earnings per share comes to $8.65 — not too bad at all for a stock that’s trading under fifty bucks. All in all, breaking through the $50 price barrier seems entirely realistic, and a number of prominent analysts seem to agree with me on that point: Deutsche Bank has a price target for Micron stock set at $55, while Goldman Sachs has its at $56, Bank of America at $60, and the Royal Bank of Canada at $55; besides, all of the foregoing have either initiated or reiterated a buy/upgrade/overweight rating on MU stock.
Feast on DRAM Chips for Gains in MU Stock
Demand for high-powered, top-of-the-line DRAM (dynamic random access memory) chips was under pressure in the second quarter of 2019: the ongoing U.S.-China tariff conflict, the Huawei ban, and a generally uneasy August for the equities market made life difficult for semiconductor companies and particularly for Micron stock. That same 31-stock SOXX ETF lost 2% in the month.
Since 65% of Micron’s revenues come from DRAM chip sales, a turnaround in the industry would benefit MU stock tremendously. Mehdi Hosseini, a financial analyst for Susquehanna, sees such a turnaround coming in the near future:
“Our updated (bottom-up) DRAM supply-demand model suggests a more balanced dynamic in 2020, followed by increased tightness in 2021 … This bodes well for memory manufacturers, particularly MU.”
To be honest, there was an oversupply of DRAM chips that began in September of 2018 and persisted through this year’s second quarter. However, like Hosseini, I’m preparing for this trend to reverse; the analyst has specifically projected that the demand for DRAM chips should increase by 22% annually from 2019 through 2021.
And when it comes to DRAM chips, Micron is truly at the forefront of the niche. Even an escalating trade war couldn’t stop Micron from releasing its super-powerful LPDDR4X DRAM chip, a 16-gigabyte memory beast whose distinguishing feature is its surprisingly low power consumption. Providing a reduction in memory-system power consumption of 18% to 20%, the LPDDR4X is perfect for smartphones and power-intensive gaming devices — and could easily be a game changer as the DRAM market finds its footing in the second half of the year.
The Takeaway on Micron Stock
Analysts at JPMorgan (NYSE:JPM) this morning said they “remain confident” in a H2 pick-up in overall chip demand after a first half that was roiled by economic and trade uncertainty. The majority of the analysts’ semiconductor groups missed earnings forecasts in the period. Micron stock is now among their top sector picks.
Traders have watched MU stock dip from the $60 level over the past year, and I can understand their reluctance to jump in amid an escalating tariff battle. Nonetheless, I’m more than happy to buy the Micron chip dip as a DRAM market recovery may be in the offing — and a re-test of the $50 and $60 levels might just be the beginning.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
