In This Article:
Ask a lot of Wall Street analysts what to buy today, and many of them will say Micron Technology (NASDAQ:MU). On the surface the memory maker looks dirt cheap for a tech stock. The price-earnings ratio is below 6, and price to sales is just 2. Assuming the inventory recession of last year is over, results could improve sharply. Even if they don’t, MU stock is still a bargain.
Source: Charles Knowles / Shutterstock.com
But there’s a reason Micron sells at 6x earnings. Micron’s history is one of booms and busts, and this bust may not be over. That’s because the good times have brought out some big new suppliers.
So, buy or sit?
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
The Buy Argument
The buy argument starts with the most recent results, delivered in June. Net income of $1.2 billion, or $1.05 per share on revenue of $4.79 billion was “better than feared.” Chip prices are stabilizing and could start to rise by the end of the year.
Micron next reports earnings September 26. The consensus estimate is for net income of 42 cents per share, or about $500 million, on revenue of $4.5 billion. There is also a “whisper number” of 49 cents per share.
Analysts are expecting an upside surprise. They have set a low bar they expect the company to clear handily. The stock is still “priced for disaster” as our Thomas Niel wrote recently. Whether this is the bottom or next month is the bottom is less relevant than the idea that you can see the bottom.
The Hold Argument
While analysts have been boosting their price targets on the stock, $52-$55 isn’t far from the $50 and change the stock is due to open at this morning.
That’s why the sages at InvestorPlace are telling bulls to be careful. Be careful in the short run, writes Will Healy. It’s an “ugly road” to the top, writes Luke Lango, who recommended the shares at their bottom of $35.
The concern, as always, is China. It’s not just the trade war, with its tit-for-tat taxes. It’s also China’s stated goal of becoming independent of American chip suppliers. This starts with Micron. The U.S. government formally charged two Chinese companies with stealing Micron’s intellectual property last year. Micron CEO Sanjay Mehotra was reportedly in China recently, meeting with one of the companies that were charged.
There’s also Intel (NASDAQ:INTC). Intel and Micron ended their memory partnership last year. Intel has opened a new front in the competition with new packaging, tying memory more closely with processing, including graphics processing.