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Why Micron is a Semiconductor Gem
by Jamie Dlugosch
If you like roller coasters, then owning semiconductor stocks has had you yelping for glee as you've ridden one wave after another up and down during the month of October.
The notoriously volatile sector outdid even itself last month as short sellers and bulls fought a furious battle over what will happen next in the industry.
I'm still not sure who won, but I see one standout that looks to be a sure winner going forward.
That company is memory chip maker Micron (NASDAQ: MU).
While the stock tanked like every other name in the sector in October, its resilience had it trading nearly right where it started at the beginning of the month.
Layer a chart of Micron against any other name in the space and you will see the decline and bounce-back not nearly as severe as the rest of the industry.
That underlying strength in a very difficult period should be cheered by investors.
In my opinion the action sets the stage for a big rally to new highs for the company, perhaps to be reached in 2015.
The disaster for the rest of the sector began in early October when Microchip Technology (NASDAQ: MCHP) spooked the entire market with a warning that results were lagging expectations.
It was the classic "chicken little" moment in a market that didn't need much of a push over the ledge.
When the dust settled, many names in the space had collapsed beyond bear market territory; some lost more than 30% of their value in just a week or so of trading.
Rarely do you see such gigantic swings. It was a rather remarkable shaking of the trees.
Average investors were blindsided, and I'm certain many of them headed for the exits. But that would have been the wrong move ... or would it?
Throughout the rest of the month many other semiconductor names including Intel (NASDAQ: INTC) calmed investor nerves by reporting operating results that exceeded expectations.
Still, it was a mixed bag.
The semiconductor space has lots of different players doing different things selling to different markets. Some are doing well and some, well, not so much.
One company not doing so well is InvenSense (NYSE: INVN).
Like the rest of the players in the chip space, InvenSense shares traded lower in the first half of October. Then in the last week of the month, the company released earnings. The numbers disappointed an already skittish chip investor market and shares plunged to the tune of 25% in the day of trading after the news was released.
The good news for Micron came at the end of last week. Fellow memory chip maker Spansion (NASDAQ: CODE) released earnings that had the opposite effect.
Previous to its release of operating results, Spansion shares were down some 25% in October. After earnings were released, the stock jumped 25%, erasing much of those losses.
Longer term, the industry dynamics appear to be quite favorable for both Spansion and Micron.
In a recent Barron's article, Wall Street firm Needham & Co. made the case for both companies amidst the turmoil in the overall semiconductor space.
The demand for memory chips is exploding as the smartphone revolution continues.
Most estimates for Micron suggest significant profit growth in the coming year -- some 15% for the fiscal year ending August 2015. At current prices, shares trade for only nine times current fiscal year estimated earnings.
That's a bargain that should allow you to safely ride the chip roller coaster in the form of Micron shares.
Jamie Dlugosch Editor Investor Research Institute
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