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Micron Technology, Inc. (MU) Stock Is on Track for Decade-Long Highs

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Shares of Micron Technology, Inc. (NASDAQ: MU ) have been on fire this year, climbing almost 50% in 2017. After tagging $33 earlier this month, MU stock abruptly pulled back, declining more than 10% in just a few trading sessions. However, with its recent rebound - up about 6% last week, and another 2% this morning on a fresh upgrade - Micron is right back on the cusp of new multiyear highs.

Micron Technology, Inc. (MU) Stock Is on Track for Decade-Long Highs

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Micron's performance should come as little surprise. Other chipmakers, like Advanced Micro Devices, Inc. (NASDAQ: AMD ) and NvidiaCorporation (NASDAQ: NVDA ) have been on fire this year .

But will the rally continue?

Today's Catalyst

Monday's burst in MU shares comes courtesy of Wells Fargo analyst David Wong, who raised his price target on the stock from $32.50 to $40, representing about 26% upside from current prices.

This comes just a couple days before Micron's fiscal third-quarter earnings report, which is slated for Thursday after the bell.

According to StreetInsider , "Analyst David Wong notes a continuing firmness in memory pricing, suggesting the company's revenue and profitability could be better than expected, resulting in a raising of estimates, as benign pricing environment will potentially drive revenue growth and margin improvements."

That has MU stock up 2% on Monday.

Boom and Bust

Micron and other chipmakers operate in a boom-bust industry. That's not what long-term, buy-and-hold investors like to hear.

But it's music to the ears of short-term and nimble investors.

For instance, Micron traded below $7 at the start of 2013. It proceeded to rally to multiyear highs near $36.50 in late 2014 before falling back to $10 in early 2016. Now? Shares are back above $30. Depending on where buy-and-hold folks jumped in, they've either had their hearts ripped out or their next five vacations paid for.

Nimbler traders willing to cut bait more quickly may have been able to ride two triplers inside of five years.

All of this is fed by the fact that Micron's business - and by extension, MU stock - is heavily cyclical. When demand is high and supply is tight (like right now) chipmakers like Micron have pricing power. When additional factories add supply, or when demand drops, that pricing power diminishes, cramping profits and driving shares lower.

It's going to happen again, to Micron and the rest. That's just how it goes. But that doesn't mean we can't enjoy the rides.

The Problem With Micron

MU shares are up more than 160% over the past 12 months, and it's already up more than 15% over the past month. Micron is, simply put, running hot.

But it's doing so with earnings just a couple days away - and that kind of catalyst paired with a breakneck pace make it awfully difficult to buy with much confidence.

The year-over-year comparisons are going to be impressive no matter what. Analysts expect $1.50 per share in profits, versus last year's 8-cent loss. Revenues are estimated to come in at $5.41 billion, which would be an 86% improvement.

The problem? Expectations.

Just 90 days ago, analysts were looking for a mere 89-cent profit. That means the pros have adjusted their estimates skyward by nearly 70%! That makes a beat look much more unlikely, and certainly makes Thursday's report a higher-risk, lower-reward situation.

But MU Stock Can Still Hit New Highs

Despite these rapidly rising expectations and slowdown in growth next year, Micron can still rally. Not only that, it can take out its previous decade-long highs and move even higher.

Why?

For starters, the valuation. Micron trades at a paltry 7.4 times 2017 earnings estimates. Given its erratic earnings growth, one can't look for a consistent valuation to slap on MU stock. But for a company to grow sales ~8% and earnings 20% in a year following enormous growth, that deserves at least a 10x trailing earnings multiple.

Should MU stock be valued at 10x 2017 earnings ($4.29 per share) at year's end, the stock would be worth more than $42.

Heck, even if it trades at the same current-year valuation (7.4x) and its estimates for 2018 don't change, investors can expect more than 20% upside by fiscal year-end. Why? If MU stock trades at 7.45x 2018 earnings estimates of $5.15, that pushes the stock past $38.

We can see the bullish formation here. Support has held steady, and if Micron can take out resistance near $33, shares will be off to the races. That will set Micron up to test its prior multiyear highs near $36.50.

The MACD (bottom of the chart) measuring momentum is setting up for a possible bullish move too.

Initiating a new position near current levels is tough. For short-term traders, consider buying on a retest of the 21-day moving average or a breakout over $33. A stop-loss below support can be used as well. Just be aware of earnings in a few days.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter at @BretKenwell . As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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The post Micron Technology, Inc. (MU) Stock Is on Track for Decade-Long Highs appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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