Is this a trade? Heck ya. The number of investors who have made money taking a ‘long-term’ view of Micron is near zero. Trading Micron is all you can hope to do.
We pulled MU off the active Longs on March 6 2018 at a price of ~$54. Not too shabby. I kick myself for not going Short, of course, as all good investors do, but making money in MU is never a given, so when you get out with your neck intact, you always have to be thankful!
Why are we buying Micron?
- The stock just touched book value. As long as the company doesn’t lose (much) money in this down cycle, the book value line in the sand should hold.
- Content growth in handsets and PCs should push the DRAM market towards stabilization in 2H19.
We are NOT believers in the oligopoly thesis…people have been trying to sell that monkey poo since before 2008. We’ll pass on that one. Supply grows in DRAM thanks to technology + capex, and sometimes one without the other. The pain of holding inventory in a falling price and cash burning situation is too much for any company to do for more than one quarter. And market share gains are a function of…you guessed it, technology + capex. So if the company believes in it’s R&D bucket and backs innovation with dollars, share gains will appear and the market will be competitive. The oligopolistic thesis of the DRAM market is dead. Please let it remain buried.
Is this the end of the bear case? No! We see 1Q19 prices down 10-15% and 2Q prices down another 10% based on our latest work. Fundamentals will erode from here to April and that might freak some people out and cause another splashdown in the stock. But for now we will add MU to the Long side and watch to see how book value investing helps or hurts us.
Does that change our view of MCHP? NO! The DRAM market is fast moving. Inventory will be burned. Capex mitigated. Numbers adjusted. All of this will happen with alacrity in 1H19. The automotive + industrial markets are slower moving. Inventory discovery and burn takes longer, downward adjustments are still without fathom, and the resulting elasticity of a down cycle may not appear until 2020, making the chipper still a healthy Short in 2020.
