Micron: A Cheap Tech Stock That Analysts Expect To Double

Jun.19.12 | About: Micron Technology (MU)

Many tech stocks have declined in recent weeks and this is creating an opportunity to buy select names at bargain prices. It seems that many investors have reached what might be maximum pessimism about Europe and the United States, and as such, valuations could be at or near the bottom. There are certainly many challenges facing the global economy, but there are still many ways to solve the issues in a way that ensures slow, but steady growth.

A slight market rally in the past few days shows some signs that investors are realizing that central banks are not going to just let the world slide off a cliff without a fight. The most likely outcome is a situation where the global economy continues to muddle through the problems. That could mean that many tech stocks are now way too cheap and some even have room to double off of recent lows. Micron Technology Inc. (NASDAQ:MU), is one tech stock with the potential to double. Here are 4 reasons why investors should be considering a buy at current levels:

1. Micron shares have been battered and are now just plain cheap. The stock is trading about 40% below the 52-week high. It is also trading well below book value which is $8.07 per share. Micron has a strong balance sheet with about $2.09 billion in cash and around $2.32 billion in debt. As a leading maker of chips, and with solid fundamentals, Micron shares deserve to trade at higher levels and for a premium to book value.

2. Micron continues to innovate, and it's size and scale makes it a low cost provider of key memory and other tech products. The company recently released a new DRAM product for high-end networking and graphics customers. It features 1066MHz, and a 2133 MT/s data rate which boosts bandwidth with minimal power consumption.

3. Microsoft (NASDAQ:MSFT) is planning to launch of Windows 8 in the next few weeks. This latest version of the Windows operating system will offer new features and better integration with smart phones and tablets. The release of Windows 8 could spark a major upgrade cycle within the tech sector, as consumers and businesses purchase new systems. This could lead to a surge in demand over the coming months for Micron products.

4. Micron could be getting even better positioned and become a larger company soon, as it is in talks to purchase the assets of Elpida Memory, Inc. Since Elpida (OTC:ELPDF) had about the same 11% market share as Micron, this deal could greatly expand the company. Plus, Micron could be buying the assets cheap, at what might be just 20 to 30 cents on the dollar.

Analysts at Jefferies & Co., believe Micron shares are way below fair value and set an $11 price target based on potential benefits from a deal with Elpida, and what could be better-than-expected profit margins. Investors who buy now, would just about double their money if the stock hits the $11 price target.

Key Data Points For Micron:
Current Share Price: $5.89
52-Week Range: $3.97 to $9.16
Dividend: none
2012 Earnings Estimate: a loss of 65 cents per share
2013 Earnings Estimate: 58 cents per share

Microsoft is another undervalued tech stock that makes sense for more conservative investors seeking income. This company has a fortress-like balance sheet and it is likely to continue raising dividends over time. Microsoft trades for just about 11 times earnings, and the stock is likely to continue trending higher.

Key Data Points For Microsoft:
Current Share Price: $30.02
52-Week Range: $23.79 to $32.95
Dividend: 80 cents per share which yields 2.7%
2012 Earnings Estimate: $2.68 per share
2013 Earnings Estimate: $3.09 per share

Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.