We Initiate Coverage Of Micron At Hold

We Initiate Coverage Of Micron At Hold
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Think Different.

by Alex King

If you are going to follow Micron ($MU) stock, you have to think differently. This is a semiconductor business, but it's not like AMD or Nvidia or Texas Instruments or Analog Devices or any of these kind of names, and that's for two reasons.

  • One, it's an integrated device manufacturer, meaning, it owns and operates its own factories producing chips. This is a nightmare of a business to run because it eats capex and belches out toxic waste in any number of physical states from solid to gas and probably plasma too on a bad day.
  • Two, it produces memory - DRAM and NAND - exclusively, and this is a nightmare of a business to run because it is both commoditized and highly price competitive and yet still requires incessantly huge levels of investment in R&D and capex to stay ahead of the other two or three global competitors.

In short it is a nightmare of a business model. Predictable subscription software business this is not.

In addition the chart alternates between being so rangebound even a Jedi master would doze off, and being so volatile that you wouldn't put your keep-safe money anywhere near it.

Apart from all this though, it's no trouble at all.

Oh. One more thing. This:

So, we commence coverage of this name at what appears to be a pivotal moment in the stock's story. Wedge patterns like that tend to resolve violently; in my experience it is difficult to predict in which direction. Looking at it another way though, that $98 all-time high that has proven rock-solid resistance for, yup, 24 years (!) - this is a decisive level and it's very close to the current price - today's close was $94. Sometimes with technical analysis, simple is best. In the short term we can say that for MU, >98 = bullish, and <98 = bearish. One way to trade this kind of setup with a long position is as follows:

  • A buy-stop order above the key level - say $99, 100, 101, whatever.
  • With a sell-stop order placed a little below the key level - say $95, 94, 90, whatever.

This way if the stock never clears the key level, your buy order never fills. If the key level is cleared and you buy order fills, your downside is limited to just a few dollars per share before your sell-stop kicks in. If the stock starts moving to the upside and you are (quite reasonably) freaked out by the volatility in this name, you can always move up the sell-stop order or place a trailing stop order (probably not too tight given the volatility).

This method would work to play IWM long too by the way - key level $200 - all the same logic above applies.

Anyway, let's take a look at the fundamentals, valuation, our more detailed and recent technical analysis, and so on.

(Here's the headline numbers by the way. They don't tell much of a story. Want the story? Read on.)