Micron Technology, Inc. (NASDAQ:MU) stock has gotten out of its funk and in a big way. The price action on Micron stock looks more like that of a red-hot IPO, not a 40+ year old memory chip manufacturer.
But hey, the industry has gotten some encouraging news lately. Perhaps the most important is the thawing of trade tensions between the U.S. and China.
Then again, Micron stock has been subject to wide swings over the years. Back in late 2015, the shares hit about $10. Keep in mind that the supply-demand balance for memory chips can easily get out-of-whack.
OK then, so what now? Is Micron stock still a good buy or should investors hold off? Well, for those who have a long-term perspective, I think there is still upside. Here’s a look at three factors:
Bullish Factor #1: Secular Trends
There are plenty of megatrends in the tech industry, such as cloud computing, AI (Artificial Intelligence), machine learning, mobile and AR (Augmented Reality) and there certainly are many ways for investors to play this.
Just some of the tech companies that are trailblazing key markets include NVIDIA Corporation (NASDAQ:NVDA), Amazon.com, Inc. (NASDAQ:AMZN), salesforce.com, inc. (NYSE:CRM) and Alphabet Inc (NASDAQ:GOOGL).
But of course, Micron should be added to the list. Consider that high-end technologies require substantial amounts of memory. It’s really just that simple.
According to InvestorPlace.com’s Dana Blankenhorn: “Disks are just too slow. Chips are faster. Disks break. Chips don’t. The price advantage of disk continues to wither away, as machines replace people in accessing machines.”
Something else: The growth in demand is likely to last for some time. In other words, this should help mute the boom-bust cycle of the memory industry. It also helps that there are only a few manufacturers in the industry and they are fairly disciplined with their investments in capacity.
Bullish Factor #2: Innovation
As companies get larger, it can get tougher to innovate. But this does not seem to be an issue with Micron. The company continues to invest aggressively in R&D – helped with its rapidly increasing revenues and profits.
For example, the company recently announced an SSD that is based on quad-level cell (QLC) NAND technology. This is actually an industry first. Keep in mind that the SSD allows for 33% higher bit density versus alternative solutions. The technology will also be key for cloud storage, AI and business intelligence.
But another critical factor to Micron’s innovation is its partnership strategy. For example, the company has expanded its alliance with Intel Corporation (NASDAQ:INTC). In fact, the deal will involve creating another industry first – that is, the production of 4bits/cell 3D NAND technology.
Bullish Factor #3: Financials
Micron stock definitely is shareholder friendly. Note that this week the company announced a whopping $10 billion buyback of its shares. This comes about to 15% of the market cap!
But in the meantime, it looks like the growth will continue. The company recently raised its guidance for the fiscal third quarter. Earnings are expected to range from $3.12 to $3.16 per share and revenues to come to $7.7 billion to $7.8 billion. The Street, on the other hand, was looking for earnings of $2.86 and revenues of $7.49 billion.
However, what about the recent run in Micron stock? Might the valuation be too rich? Actually, this is far from the case. If anything, MU stock is dirt cheap, with the forward price-to-earnings multiple at a mere 6X.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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