Technology Stocks

Micron Technology, Inc. (NASDAQ:MU): Technicals and Fundamentals Conspire to Signal a Potential Opportunity

Micron Technology, Inc. (NASDAQ:MU) can foster more disagreement among tech stock traders and investors than maybe any other play in the sector right now. To some, it’s just a chip stock. And the chip cycle is what it is. To others, the company has become a special case. However, this is firmly a tricky cyclical play, and that warrants some big-picture perspective.

Panning back, MU has roared higher, moving from $10/share to $60/share during this latest big leg (2016-2018) to the broad equities bull market. The stock has pulled back over recent months as DRAM and NAND prices have been dipping and, according to other animals in the hardware food chain, we are experiencing a CPU shortage that is traffic-jamming the memory demand cycle and hindering a natural recovery.

Micron Technology, Inc. (NASDAQ:MU) is, as the reader is likely no doubt aware, probably the most important DRAM play. Dynamic random-access memory (DRAM) is a foundational semiconductor memory form that stores each bit of data in a separate tiny capacitor within an integrated circuit. This is a straight binary process.

The company also provides NAND products, which are electrically re-writeable, non-volatile semiconductor memory, and storage devices.

Between the two (DRAM and NAND), the company is a central weather gauge for the memory cycles that underlie a lot of the technology sector business cycle. So, it’s an extremely important stock to understand and follow – probably more than most people really understand.

In addition, Micron and Intel have been collaborating in a JV project called IM Flash Technologies that is primarily centered around developing and operationalzing 3D XPoint technology. Micron recently opted to take that project over with full rights.

Micron Technology, Inc. (NASDAQ:MU) managed to rope in revenues totaling $8.4B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top-line growth of 37.5%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($6.8B against $5.8B).


Timing and Expectations are Favorable

Right now, we have the potential to bounce the stock based on technicals, with MU testing its lows from February, when we saw the last important equities correction.

If you’re looking for that bottoming odds-builder, a simple historical analysis will show that the whole chip space has one special month that is better than any other: November.

For the past two decades, the SMH ETF closed higher in November 74% of the time. That’s more than any other month of the year. Given that we have seen weakness right up to the doorstep of November, the odds of a recovery month coming just around the corner are certainly worth exploring.

Given that the company has adequately sandbagged the estimates for its December financials, an in-depth analysis suggests a relatively easy time beating current estimates, particularly if we see INTC meet its numbers this week and hint at an abatement of the CPU shortage.

All in all, for those looking for the hint on bottom-timing this MU pullback, we would focus more on the INTC conference call than on the data and guidance just out from TXN and MKSI.

For the traders out there, as should be clear in the chart above, a shot taken here should find $40+ rather quickly if the stock is set to hold the key $38 level support. If it doesn’t, have the discipline to lighten up or walk away until the next clear setup appears.

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