Memory semiconductor makers Western Digital Corp (NASDAQ:WDC) and Micron Technology Inc. (NASDAQ:MU) have both been on my watchlist this year, as the industry looks ripe to continue delivering gains for the foreseeable future. Worries about a slowdown in the memory space have weighed on both WDC stock and MU stock. So, despite the fact that they have both been on a bull run for the past year, now is still a reasonable time to take up a position.
A great starting point for comparison is valuations. A brief glance at the numbers will tell you that MU is remarkably cheaper. WDC stock trades at nearly 16 times its earnings vs. Micron’s 9.48 P/E ratio. Looking into the future, the disparity is there, although less apparent. WDC has a forward P/E ratio of 7.36, while Micron’s forward P/E comes in at just 5.87.
There is some justification for Western Digital Corp stock’s higher price tag — the company is far more established than Micron and, therefore, WDC stock offers investors much more stability. Plus, it’s important to note that both stocks come in well below the industry average P/E of 40.38. However, if we’re looking at this from a value point of view, MU’s significant discount gives it a slight edge.
Memory chips are a commoditized industry, so some of the reasons that both companies’ valuations come in below some of their tech peers can be attributed to that. Investors should keep in mind that the chips that MU and WDC supply tend to follow a cyclical demand cycle — and many are worried that supply will soon level with demand, pushing prices lower.
For that reason, diversity is an important metric and WDC appears to have the edge on that one. Western Digital has a large product portfolio in the solid-state drive (SSD) space, but the firm also offers a range of hard drives, software and several consumer products, like wireless networking devices and TV set-top boxes.
Those additional revenue sources will help pad WDC if the memory chip market does take a downturn. MU on the other hand, has diversified the uses for its chips and manufactured unique offerings, but relies heavily on ship sales.
Both stocks look poised to benefit from growth in the memory industry over the next 5 years, but Micron has the edge when it comes to company growth. As WDC is further along in its growth cycle, MU has more potential to deliver if the memory space continues to explode, as many are expecting.
Micron’s chip offerings are one of a kind, with the firm boasting the only memory chip that can support bandwidth speeds of more than 800 gigabytes per second. That kind of technology is likely to come in handy as autonomous driving continues to develop and more and more memory becomes essential to performance.
Of course, WDC will also benefit from action in the memory industry, but perhaps not as remarkably as MU. With that in mind, WDC isn’t in a bad spot either. The company’s other businesses also look likely to see growth in the coming years, making it a safer option for investors who don’t want to put all their eggs in the memory chip basket.
By the Numbers
Both WDC stock and MU stock are backed by solid financials. Neither has unreasonably high long-term debt compared to the industry average, but its worth noting that MU’s debt to equity ratio of 34.01 is substantially lower than MU’s 104.48. Micron also looks more efficient than WDC, with a gross profit margin of 48.3% compared to WDC’s 35.6%.
Unlike Micron, WDC does offer a dividend payment — but with a yield of just 1.94%, I wouldn’t say WDC is a buy purely for its income benefits.
The Bottom Line on WDC Stock and MU Stock
If you’re looking to benefit from growth in the memory chip space and you only have room for one stock, Micron is the better bet. The firm’s growth potential simply outweighs that of WDC and Micron’s position in the memory chip space is more solid.
However, that doesn’t make Western Digital Corp a bad play. WDC stock has a lot going for itself as well. Although it’s growth story isn’t quite as promising, the firm looks to be poised to deliver substantial gains in the long term and offers more of a safety net than MU does.
As of this writing, Laura Hoy was long MU.
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