Chip maker Micron (MU) was one of the best performing semiconductor stocks heading into its June earnings report – up 118% over the previous 12 months, trailing only NVDA among stocks in the Philadelphia Semiconductor Index over the period. Since then – however – the stock has plunged 39%, far beyond the correction seen in other chip stocks over that time frame. While I’m far from an expert on chip stocks – which are cyclical and therefore very tricky to time short term – I am a long term believer in the thesis that “semiconductors are the new oil”. Therefore, MU’s big correction may present a nice entry into the stock ahead of earnings Wednesday afternoon.
According to the WSJ’s Dan Gallagher, most Wall Street analysts see current weakness in MU’s memory chip pricing as short term – as you can see in the chart above – and are bullish on the stock long term (“Micron Needs A New Memory Boost” [SUBSCRIPTION REQUIRED], September 24). In its last earnings report, MU’s guidance called for $7.6 billion in revenue and $1.08 EPS in the August quarter. While MU’s business is extremely cyclical as I said above, that is a solid quarter for a company with a market cap of $106 billion, a stock that closed Monday at $93.57 and the long term growth prospects I – and Wall Street – believe MU has. I’ll likely initiate a small long term position this morning.
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