On Tuesday, Micron Technology, Inc. (MU) reported its first quarter earnings for FY2014 and the stock was immediately sent significantly higher, shooting up over 9% during the next trading session. SA contributor Achilles Research penned a brief comprehensive article highlighting the major takeaways from Micron's impressive quarter. In my last article, I mentioned some of the more subtle aspects of MU's quarterly report that investors should be aware of as well. Once familiarity with the report is gained, it's time to look forward for shareholders of Micron. Is a generic long-term hold the best way to play this company that has enjoyed such a dramatic run-up over the last year?
There is a lot of hesitance among some of the bigger names on Wall Street to recommend buying shares of Micron given its meteoric rise as several investment firms are backing off of Micron. Morgan Stanley, Deutsche Bank and MKM Partners have issued ratings of Equal Weight, Hold and Neutral, respectively with DB and MKM placing price targets of $21 and $20, representing an average 12.4% downside. Personally, I disagree with these ratings and price targets as I am a Micron bull and have been since first picking up shares at $8.29 in March of 2013. The ratings should not be ignored completely, however as they will be in the mind of some investors. On the other hand, an array of firms released positive coverage on Micron immediately following its Q1 report. Stifel Nicolaus, Needham and Sanford Bernstein have all placed price targets of at least $30 on MU. This kind of direct opposition between analysts and the high level of attention Micron has been receiving from investors, analysts and media pundits could unfortunately be turning this profitable semiconductor firm into a "battleground stock" that analysts from multiple firms squabble over asserting extreme bear or bull cases for, sending share price into an unpredictable sequence of violent shifts up and down. This effect was demonstrated by shares of Herbalife (HLF) as the company was caught in the middle of passionate disagreement between Bill Ackman and Carl Icahn. Sadly, it doesn't take the opinion of such titans of investing to cause this to happen, Micron can quickly become a battleground stock without either of those two men, especially because of its recent dramatic rise in stock price.
Share Price Volatility
In addition to a few other factors, much of Micron's story is one of supply and demand and this is no secret. Although management has made it clear on the First Quarter Conference Call that MU is perfectly positioned to be unaffected by the reopening of SK Hynix's Wuxi fab, there will almost definitely be a negative effect on shares when an announcement is made about the facility or any other ramping up of production by competitors. Micron has seen its shares drop sharply on two separate occasions (here and here) in reaction to updates on the Wuxi fab's operational schedule and SK Hynix's plan to build a fab in South Korea (for which production wouldn't even start until 2015 at best). When SK Hynix's fab is reinstated, Micron shares will undoubtedly be hit. Or what about Samsung (OTC:SSNLF) and SanDisk (SNDK)? If Samsung, the world's leader in DRAM production, announces an uptick in production for 2014 or SanDisk alters its production of NAND don't be surprised to see Micron shares overreact negatively as they have in the past.
I am by no means a day trader, in fact I consider myself as a long-term investor but shares of MU have been subject to some volatility over the past year and I expect that trend to continue. While I am bullish on Micron going forward, I would recommend shareholders to at least consider selling portions of their positions in Micron during periods of strength in the coming months and using any severe drop in price as an opportunity to repurchase shares at a significantly lower level. This strategy may not be for everyone but it is a way to benefit from MU's volatility and even if shares do not plummet temporarily as they have in the past, it's always safe to lock in some profits by selling a portion of your position.