Micron Technology (MU) is a highly cyclical semiconductor company that produces dynamic random access memory (DRAM) and flash memory (NAND), and is working on emerging new memory technology as well.
The stock recently fell from over $60/share to nearly $30/share, and is trading roughly at book value now.
The company has a trailing price-to-earnings ratio of less than 3 times 2018 earnings, and about 4 times consensus analyst estimated 2019 earnings. They also have more cash than debt, and are using free cash flows to buy back $10 billion worth of shares, which at this low valuation is about a quarter of the company’s market capitalization.
This has historically been a company with rough periods, because DRAM prices are commodity-like and volatile. Right now, we’re in a DRAM pricing downcycle, which is why the stock isn’t behaving well. There are also uncertainties around US/China trade relations, and the fact that China may one day make significant low-cost DRAM.
However, since new (and highly experienced) management took over in 2017, the company has invested heavily in advancements that allow the company to produce more advanced products at a lower cost. And in preparation for this down cycle, the company paid off debt and built up a nice cash buffer. The bull thesis is that this time, due to industry consolidation and Micron’s preparation, the company should sail through this trough better than during previous times.
I recently wrote an article on Seeking Alpha analyzing Micron, and explaining why it may be a great investment for investors with high-risk tolerances at the current time in the low $30’s per share.
It’s not necessarily a great buy-and-hold stock for casual investors. But for enterprising investors that can handle volatility, know how to manage position sizes, and don’t mind keeping an eye on the company, this could potentially offer very high returns.