InvestorPlace contributor Josh Enomoto recently wrote that despite all the good things happening at Micron (NASDAQ:MU), the coronavirus would almost certainly make MU stock cheaper in the weeks and months ahead.
Enomoto, who understands the tech sector much better than I do, believes that Micron’s stock is headed into the $40s, well below the average analyst target price of $67.51, and BofA Securities analyst Simon Woo’s $50 price target, which my colleague alluded to in his article.
If you’re like Warren Buffett, who loves to see his favorite stocks retreat in price so he can buy more, the coronavirus could provide those currently long with an excellent opportunity to add to your holdings. And if you don’t own MU stock, weakness due to the coronavirus should provide you with a much better entry point than you otherwise would have gotten in 2020.
Despite the coronavirus’ deadly impact, the world has lived through worse. As they say, and not to take the current health scare lightly, this too shall pass. When it does, Micron will carry on delivering for shareholders.
When it comes to long-term tech buys, Micron ought to be at the top of your list.
The Odds of Making Money With MU Stock Are High
While it’s true that past performance is no guarantee of future results, Micron would have to do something troubling to bring to an end to its market-beating performance over the long haul.
According to Morningstar, Micron’s performance is as follows:
Micron Stock Performance vs. Peers and U.S. Markets as a Whole
| Period |
Micron Annualized Total Return |
Semiconductors Annualized Total Return |
Morningstar US Market Index Annualized Total Return |
| 1-Year | 34.7% | 31.1% | 13.2% |
| 3-Year | 29.3% | 21.3% | 17.6% |
| 5-Year | 13.6% | 17.6% | 10.1% |
| 10-Year | 19.4% | 17.1% | 11.3% |
| 15-Year | 11.5% | 11.3% | 8.9% |
As you can see from the table above, only once — the semiconductor stock’s 5-year annualized total return of 17.6% — did either its semiconductor peers or the U.S. markets as a whole beat MU stock.
In nine out of 10 occasions, Micron’s stock was up to the task. Year to date through March 4, Micron is once again in the lead with a total return of 2.8%, 436 basis points better than its semiconductor peers and 572 basis points clear of the entire U.S. market.
Now, you could argue that this is all well and fine, but Murphy’s Law being what it is, you’ll go out and buy Micron’s stock at the precise time that it decides to go into a 20-year hibernation.
Sure, that could happen, but one of the critical premises of fundamental investing is that stock prices follow earnings.
Between fiscal 2015 and 2019, Micron’s operating income was $3 billion (2015), $168 million (2016), $5.9 billion (2017), $15 billion (2018), and $7.4 billion (2019). Choppy as those numbers might have been (semiconductor industry trait), at no point did it lose money on its operations.
Go back another five years between fiscal 2010 and 2014, and in only one year did Micron have an operating loss, and that was in 2012 when it lost $612 million on $8.2 billion in sales.
The person who sees the glass full will consider nine profitable years out of 10 a total success. The person who sees it half empty will point out that the 3-, 5-, 10-, and 15-year numbers between 2010 and 2015 would, in high probability, have been much lower than they are today.
I don’t disagree.
This is why an argument can be made in the case of Micron that a buy-and-hold-forever strategy is the best way to ensure you make a lot of money off the stock.
What’s the Downside?
The first, and most obvious downside, is that you buy at $48, and it retreats further into the low $40s or even the high $30s, a level it hasn’t seen since last June. At that point, you’re down more than 20%, in need of a 26% bump just to get back to breakeven. With the markets as a whole down almost 3% so far in 2020, that would likely be an uphill battle.
The second problem is that the company’s currently embroiled in a lawsuit, which I discussed in my last article about Micron in January. It could shine a negative light on it just as it’s trying to expand its business beyond DRAM and NAND chips into 3D XPoint technology used by data centers.
“If you’re more risk-averse like myself, this lawsuit Micron’s embroiled in is the last thing it needs as it attempts to broaden its horizons beyond memory chips; It’s still worth buying MU stock, but I’d keep a close eye on future proceedings,” I wrote on January 30.
I haven’t seen or heard anything new on the subject and likely won’t for some time. If I do, I’ll be sure to do a follow-up article.
However, regardless of where this lawsuit heads, Micron’s core business appears to be getting stronger due to rebounding DRAM and NAND prices. Offsetting this good news is the reality that the coronavirus could throw a major wrench in its supply chain, hurting both sales and earnings.
Micron reports its second-quarter 2020 results on March 25. At the very least, I would wait until after earnings to figure out how much farther its share price could fall due to the coronavirus.
I have no way of predicting if MU stock will fall into the $30s over the next few months. However, if it does, you would be wise to buy-and-hold-forever.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
