News about Micron (NASDAQ:MU) has been scarce since their April 3 earnings. In this article I briefly explore some theories on the recent price action and future pricing. Please share your thoughts in comments.
April 3 Earnings
The impact of the general technology sector drop in early April (first significant NASDAQ drop below 50 day moving average since January 2013) negatively impacted Micron stock even though Micron earnings ($0.85) beat analysts estimates ($.76) by a good margin. Mirroring the NASDAQ, Micron had its first significant drop below the 50 day moving average since January 2013. Micron's price drop in April and subsequent recovery shows the temporary impact that the technology sector can have on Micron. Neither the NASDAQ or Micron have regained their growth momentum even though both have mostly recovered.
My thought is that there has been an adjustment to the NASDAQ and that Micron will once again establish a growth pattern with a higher growth rate than the NASDAQ. If the NASDAQ dives again, Micron will likely dive too. Without an over riding negative effect by the technology sector Micron growth will be a function of:
- Oligopoly control of both production and pricing in memory,
- Exponentially expanding need for memory in new devices and
- Micron efforts to increase the Micron price to earnings ratio (including consistently increasing earnings, retiring convertible debt, development of new superior memory products).
Micron will still reach $40 by the end of January 2015.
Don't Sell in May
A recent Seeking Alpha article does a good job of looking at the "sell in May" theory. My conclusion after reading the article is that Micron will continue to have rising earnings and will therefore keep increasing in price over time - even through the "sell in May" period.
Historically spring and summer are strong periods for Micron memory sales as device makers purchase memory for the rolling out new products during the summer and fall.
Micron will make presentations at two conferences this week:
- Baird's 2014 Growth Stock Conference in Chicago on May 7 and
- Jefferies 2014 Global Technology Media and Telecom Conference in Miami on May 8
Often a careful listener/reader can pick up hints from these conferences on the current direction of Micron. Given the few sources of information about Micron these can be important in determining the short term direction of Micron stock (except when the NASDAQ dives as it did in April).
Areas that I will be listening for include:
- Direction of earnings and margins
- Progress in retiring convertible debt
- Progress in node transitions and
- Progress toward new products.
I think news regarding all of these is likely to provide a boost to the Micron stock price in May.
Recent Micron Price Increase
After the NASDAQ dive stopped, investors took a closer look at Micron fundamentals and decided that Micron was a great buy. It was . . . and still is! The recovery of NASDAQ also went with an increase in demand for and pricing of memory products, resulting in a rise in the margins earned by Micron (oligopoly effect). Micron stock price increased significantly. Pretty simple.
Conferences on May 7 and 8 should confirm that Micron is heading to $40 and beyond.
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.