Ask a lot of Wall Street analysts what to buy today, and many of them will say Micron Technology (NASDAQ:). 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.
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But there’s a 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?
The Buy Argument
The buy argument starts with the most recent results, Net income of $1.2 billion, or $1.05 per share on revenue of $4.79 billion was “better than feared.” Chip prices are 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 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 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 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. , 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 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:). Intel and Micron ended their memory partnership last year. Intel has opened a new front in the competition with new packaging, , including graphics processing.
Samsung , with twice Micron’s market share. Another Korean company, SK Hynix is also a bigger supplier than Micron.
Bottom Line on Micron Stock
My own optimism for Micron stock is based in large part on Mehotra, who became CEO . This came after a long career building Sandisk, now part of Western Digital (NASDAQ:).
This is not Mr. Mehotra’s first rodeo. He’s like a great football coach you got because his previous team was sold.
Mehotra has been making Micron more international, increasing . Micron has the cost structure to compete against anyone, even the Chinese.
While investors are getting ahead of themselves in the near term, the longer term remains bright. There is a super-cycle for memory. It began with phones, PCs and even cloud centers. Chip memory can also go into the tiny spaces needed to automate everything from factory equipment to refrigerators to traffic lights.
If you have a five-year time horizon for a tech investment, you can buy Micron now. It’s still not too late.
is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
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