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Micron: The Silver Lining

Dec. 05, 2018 9:30 AM ETMicron Technology, Inc. (MU)103 Comments
Business Quant profile picture
Business Quant


  • Short interest in Micron Technology hasn't risen in spite of all the bearish reports coming out of late, suggesting that its profitability is in jeopardy.
  • Interestingly, institutional investors have actually bought Micron stock in the last reporting cycle.
  • Long-term investors should remain patient and consider buying Micron stock if they fall further going forward.

Micron (NASDAQ:MU) has been surrounded by bearish market sentiment due to a myriad of reasons – including escalating trade war tensions between the U.S and China, and softening ASPs for both NAND and DRAM – and its shares have plunged by about 45% from their 52-week highs as a result. But in spite of all skepticism surrounding Micron's prospects, the latest short interest data publication suggests that market participants aren’t actively shorting the chipmaker’s stock and that the decline in its share price was perhaps merely the outcome of weak hands offloading their positions. Let’s take a closer look.

(Source: Bigstockphoto, Image license purchased by author)

Shorting Activity

Let me start by saying that short interest is essentially the aggregate number of short positions against a particular stock that are open, and are yet to be covered. A sharp rise in the metric generally indicates that market participants are betting on a particular stock to fall going forward. Conversely, a sharp decline in the metric would suggest that the Street is growing neutral or bullish on the name.

Now coming back to Micron Technology, the chipmaker’s prospects are being heavily scrutinized of late on the back of escalating trade-related tensions between the U.S and China and the consistent fall in DRAM and NAND selling prices across the board. In fact, there have been reports suggesting that softening contract prices could hurt the profitability of DRAM manufacturers for the next two quarters. In light of this bearish-market sentiment, one might expect short interest in Micron to spike. But that hasn’t happened at all..

The chart attached above would indicate that short interest in Micron, as a percentage of its overall shares outstanding, is actually hovering near its 10-year lows. This doesn’t, by any means, suggest that the broad

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Comments (103)

Tal Davidson profile picture
This article helped me understand MU better, as I was preparing to discuss it in my video (https://youtu.be/deTBUkDBIoc). Thank you.

I started investing and trading with 5000 USD and I have 200000 plus invested now. Basically, I buy only when fear is maximum and then I let it run on auto pilot. I sell when I start seeing astronomical price targets and too much enthusiasm. It has always worked for me without a hitch. I am busy buying Micron these days because I am confident, I will get a handsome rewards. No risk, zilch reward.
This is the way to do it ^^
Scotts Miracle-Gro Sucks profile picture
i don't trust any president who marries his hooker, that's where I draw the line
Scotts Miracle-Gro Sucks profile picture
voting for trump is like basically saying i like being poor and bankruptcy court is fun
mk1992 profile picture
Did you cheery picked your data to show 'institutions are buying'??? If you data set/service is so dead on, I am sure it will show institutional holdings for the period before this was ~83%, memory serves me. Now it's only 76.x% = institutions sold big/distribution. A lot of little guys are holding the bag now?
Business Quant profile picture
Mk1992, I posted a screenshot from Nasdaq's website. Nothing to cherry pick; that's the entire thing.
mk1992 profile picture
You highlighted and used the part 'New and Closed position' to support your thesis. That's hardly representative of overall institutional ownership. The total % stock owned by institutions is. And that has seriously dropped in the last period. eg. Eihorn took profits and sold out completely, Tepper reduced his MU holding. Smart money sold/cashed. Hardly a bullish sign?
Nice article thank you, will be following you.

I bought in 75% of my holding at circa $34 averaging the remaining 25% at $38 to $40 - This said I had previously bought between $50 and $62 so not so clever! Not yet sure where I stand having got out and then back in again. At $40 probably close to having broke even.

To be honest and for no specific reason if it hits $34 again I am buying more. But having been on the journey from $60 to $34 I still gulp when adding more money.

Pleased the short interest is slight at least.
Business Quant profile picture
Thank you, Myrmec.
With all of the trade war antics why couldn't the US ban micron memory to china? @William Tidwell
William Tidwell profile picture

That is a possible move - and a rash one - but not one that is likely on the near-term agenda. If we get that far we are in full scale economic warfare with China Such a move would likely be coupled with a complete ban on the sale of US-made technology to China. That would include Intel and AMD, of course, and would only be made in cooperation with other non-Chinese semi-c and electronics mfgr's.

The problem with it is that it would be so effective that it would quickly lead to a Chinese economic crash which would in turn raise the prospect of China confiscating all foreign chipmakers fabs. Escalation options after that get very ugly indeed.
Robert Faulkner profile picture

Think of all the smartphones and PC that would have no memory or flash.
i_am_seeker_2 profile picture
Think of the global economy in complete meltdown!
05 Dec. 2018
BQ, nice write up. Will be following you going forward.
Business Quant profile picture
Thank you, mbw. Glad you liked the report :)
peace 2 u profile picture
@Business Quant

Micron had $10b to use for share buybacks. Although the buybacks may have put something of a floor under the price, what people appear to be missing is that Micron had the ability to accumulate that much cash and pay down debt. How many companies would like to have that big of a pile of greenbacks?

The family Christmas traditions are essentially the same every year, but they are always different--the children are older, grandparents have passed on, there have been changes in income, new health issues have arisen, a baby has been born, Judy has finally gotten engaged. For reasons without explanations, Ms Market seems to believe that every cycle for Micron will be the same. Ms Market has not grasped the fact that Micron has changed. I would submit that, when someone hands Ms Market a good cup of coffee, she going to wake up causing the shares of Micron to jump dramatically. In the family, someone is going to realize that Uncle Jim has been sober for 18 months--the tradition of a drunk Uncle Jim has changed.

Just a thought or two.
I don't think they have the 10 billion. I think they anticipate using half ish of free cash going forward.
Business Quant profile picture
Interesting. Thanks for sharing your thoughts, Peace 2 u. But I'm sure Micron's financial team would have modeled for interest rates (incl. hikes) vs value added by buying back its shares this cheap, when going through their cost of capital and its allocation. Or maybe its just that MU mgmt. knows more than they're telling us, that this drop in shares was uncalled for?


peace 2 u profile picture
@Business Quant

The remarks of Sanjay Mehrotra - CEO and President--were published last night, after you published your article. It is very apparent to me that he was understating a lot. He mentioned the things which might pull earnings down. He spoke of good things happening; he did not speak of the good things adding any $$ to the earnings. He expects the second half of FY19 to be better than the first.

I believe, that between now and a week after earnings are announced, Micron is going to pop up. This would be very consistent with your points about short sales.

Just a thought or two.
TickerSquare profile picture
@Business Quant Thank you for the great article. Very nice and informative charts and content.
Business Quant profile picture
Thanks for the kind words, @TickerSquare.

Regarding the charts, most of them have been sourced from our platform, BusinessQuant.com :)


linklinklink profile picture
Nice article Business Quant.

More evidence that Micron's stock price decline is directly correlated to the international trade hostilities.

The fundamentals are telling you to buy this trough which is why the short interest isn't there, but since the actions of Trump and Xi are the unpredictable unknown the market isn't willing to bet either way.

Current stock price is extremely attractive, but none of that matters if Trump decides to slow the global economy more.

I'm expecting Sanjay to guide conservatively on December 18th, but I'd like to think he chose to pre-announce a slight beat in EPS because guidance will be flat and not down. The only time Micron didn't pre-announce was last Q when EPS was hit by the higher tax rate and they guided down.

I could be totally wrong though.

//More evidence that Micron's stock price decline is directly correlated to the international trade hostilities.//
What do you suspect these following international problems will do to the market. T.May’s teetering gov. Merkel’s wobbly coalition and its Q3 contraction, Macron’s descent into carbon tax chaos which is going to produce some seriously negative Q4 # and hopefully nothing worse than that. L3 you say Micron I say Macron, Micron Macron. The global economy is catching up with the malicious Chinese and moving us closer to a black swan. There will be plenty of blame to go around.

//but none of that matters if Trump decides to slow the global economy more.// There You go again L3(can u here it ?). Let’s see if as a Canadian you can get this one, it’s a - jeux de mots: “Vous êtes une petite tête d’haineux.”
i_am_seeker_2 profile picture
Money managers are realizing that Trump isn't 'dependable enough' for the market: Cramer

CNBC's Jim Cramer attributes part of Tuesday's marketwide collapse to political uncertainty brought about by the Trump administration.
Money managers are realizing that the president doesn't take his economic policies "seriously enough to be considered dependable," the "Mad Money" host says.
And when money managers are faced with uncertainty, they tend to sell, Cramer says.

continues www.cnbc.com/...
Business Quant profile picture
Thanks for reading and for sharing your thoughts, linklinklink.

Can't disagree there.


Robert Faulkner profile picture
Your argument that Institutional Investors are buying MU is based upon 13F filings as of 9/30/18; i.e. they were buying last summer. The stock's fallen another 20% since then so what they've done is unknown. What's the purpose of presenting a P/S comparison? Do we value the markets on a P/S basis?
P/S is frankly as good as any other metric - MU flags cheap whichever ratio you choose to use whether P/S, P/B or EV/EBITDA

Cheap in an absolute sense and cheap in a relative sense to peers
TickerSquare profile picture
@Robert Faulkner For some reason Micron's stock seems to not correlate well with P/E. Some claim it should be priced based on EV/EBITDA but the stock seems to track EV/Sales best (which is pretty closely related to P/S).
Robert Faulkner profile picture
@Instant Karma

Sorry but we'll have to agree to disagree. This isn't a private company with no earnings but a very high revenue growth rate. And, as I said, we don't value markets on P/S ratios because it has no meaning.

Herd mentality works both ways

Damb link. Google "bounded rationality" as it applies to buy/sell decisions.
Looks like we need to dollar average our purchases, maybe every 4 or 5 points lower each time.
Started doing that at $35, adding more at $30.
I think that's the best way in this volatile market
MU to get hammered.. into the 20's in a week..
William Tidwell profile picture
Very interesting analysis. Thanks.
hormone profile picture
William, will you be publishing a pre earnings analysis?
William Tidwell profile picture

No. I'll wait until post earnings to comment. I am already on record with my expectations - $3.02 EPS and $7.9 - $8.0B revenue.
hormone profile picture
Hi William and thanks for your reply. Where do you think their guidance for Q2 will fall? Thanks!
Microns guidance has been solid! Management is making great positioning moves. First article that has highlighted accumulation by big money! Seems like such a no brainer! Hard to be patient with all the fear and uncertainty being promoted! But then I just ran out of memory in my iPhone, just upgraded my HDD to a 1tb SSD, and started bringing home smart devices for the house! The market may slide but the future is coming anyway and Micron is going to be at the heart of it!
waiting for MU to hit $20
yeah.. why not 10? pontificators
the last and lowest price for MU in this down cycle of the semiconductor stocks is $20
So you expect negative earnings for it to trade below book value?
marriottmare profile picture
Long mu
Helps to have little debt and be sitting on over $6/share in cash.
Business Quant profile picture
Absolutely! Micron will easily weather this temporary downturn. Other companies like FTR would've gone BK if they were in such a situation.
News out this morning China taking steps
Can you post a link? Is it once again China talking but no doing?
was on yahoo finance this morning. similar article on CNBC. But "tariff man"? What an @$$
Yeah, I lost big yesterday, not only wipe out my gain from Monday, but also drag me into a huge negative due to MU down more than up.
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