Micron (NASDAQ:MU) will rise significantly after earnings with a big blowout above the earnings estimated by Wall Street Analysts ($0.61). Seeking Alpha Micron contributors estimate $0.90 to $1.10 per share with the stock price easily rising to $28 in April. This rise is a result of recent actions by Micron to purchase and effectively integrate Elpida into Micron, general memory industry consolidation as well as Micron's consistent advances in memory technology such as Hybred Memory Cube and the Automata Processor. Profits associated with investing in Micron can be complemented by understanding and using information about how the stock price has risen and fallen in the past in reaction to news.
Other articles have documented Micron as a good buy with rising earnings. These rising earnings have created highs and lows in the stock price. Investors see the huge gains in Micron stock price and they feel they should take profits. This includes individual investors, hedge funds and insiders. Between earnings the stock price will drop as profits are taken. Many people think that Micron can't keep going up. Insiders after 10 years of getting no benefit from stock options are cashing in simply to enjoy life. Then when earnings again surprise investors, Micron stock price will rise even higher - staying within a well defined top and bottom line. These are fundamental patterns that affect the price of Micron stock and should not be ignored by any investor.
The remarks below are geared to those that follow the market and Micron closely and are willing to accept a little more risk to increase potential profits. The approach described below is based on the estimates by SA Micron Contributors. Various Seeking Alpha contributors have estimated that the earnings to be announced in late March or early April will rise to the $1 range. These same Seeking Alpha Micron contributors estimate further increases in earnings in future quarters.
We can invest in Micron and ride the ups and downs. Or we observe and anticipate these ups and downs and apply this knowledge to increase our profits. General timing is clear: Get out after earnings and back in before next earnings. Then out again after earnings. In 2013 as the Elpida purchase was anticipated, the stock would rise before earnings in anticipation and then drop after earnings because the earnings were not as high as expected. The up after earnings is new in the quarters following Elpida's absorption into Micron (after purchase accounting cleared the books of marked down Elpida inventory).
It appears clear that price will be level or drop during the weeks following earnings. A week after earnings may be a good time to sell Micron stock.
It seems that when to buy is less clear. Last quarter, two days before earnings would have been best. Maybe a week before earnings would be "safe"?
Timing of the Micron price increases and decreases is a factor of emotional cycles combined with profit taking and "news". The emotional cycles and the profit taking without any "news" would indicate that getting in a week before earnings and out a week after would be best. The "news" is an unknown that messes with the a rising stock price - "news" is the source of risk. Here I am talking about news other than news provided by Micron - general market "news" and general memory industry "news".
The Micron stock price reactions to market "news" can be seen clearly in stock chart top and bottom lines. When the bottom line is reached there are more buyers at that price then sellers. When the top line is reached there are more sellers than buyers. The 50 day moving average serves as a well tested bottom line for Micron (tested seven times in the last 16 months). The chart below shows bottom and top lines as well as "buy" and "sell" bands. Note that the slope of the lines indicates that Micron stock will rise about $1.25 per month as it has for the past 16 months as it rises to $40 after the January 2015 earnings.
These bands provide clear "buy" and "sell" zones. Note that if the price is in the "sell" zone approaching an earnings report, be careful. This would indicate that the market expects a high earnings report. In this case a "high" earnings report may not be high enough to satisfy the market and a price drop may occur.
These top and bottom lines indicate how the market has responded in the past to events and cycles. While they are not a sure thing, using them does increase the probability of profits.
A confirmed bounce off of the bottom line will likely be a good time to get in . . . a high probability purchase. A confirmed bounce occurs when the price goes down toward the bottom line, closes above the prior day and then opens up at a higher price - the confirmation. Greater gains at higher risk can be sought by anticipating a bounce when MU is within $0.80 of the 50 day moving average.
The top line looks like it is about $3.50 above the 50 day moving average. (October high ~$3.50 above 50 day moving average, December high ~$4 above 50 day moving average, January high ~$3.50 above 50 day moving average).
Micron is expected to rise to $40 after earnings in January 2015. Then Micron is expected to continue to increase reaching $75 as new technology is brought to production and the benefits of consolidation become more apparent. If you can accept higher risk in return for potential higher profits, consider buying Micron options when the stock is within $0.80 of the 50 day moving average (especially if this occurs about a week before earnings) and consider selling when the stock reaches $3.50 above the 50 day moving average (especially if this occurs about a week after earnings). This approach allows us to catch a $3 bounce in Micron stock each quarter well into 2015. Micron is well positioned in the industry for increased earnings.
Disclosure: I am long MU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I write articles to share my thoughts forward so others may benefit from my research, insights and mistakes.