Micron Technology (MU)

Earnings out last week were good and they beat nicely. This is a stock you want to put away for a couple of years. It had a nice recovery. The memory space had a wave of consolidation so there are not many players left and there is a return to the PC cycle. Computers are more intense users of memory than cell phones and tablets. They have great margins and good revenue momentum. A very good space.

This is all about memory and that particular space is firming up quite a bit. Demand is rising for memory. Flash memory, but more particularly the D-RAM memory. People want new phones and that is going to continue. Trading at a pretty deep discount to its group at 9X forward PE, versus the group at 17X. Thinks the stock will grow at 15%.

This is the cyclical of the tech names. It is a deep cyclical in that when things are going well, things are very, very well, but when they go badly, the earnings just disappear. Closed at $31.04 and his model price is $52.85, a 70% upside. However, the market is sceptical because obviously earnings are great today, but what is going to happen tomorrow. There is a significant discount between the price today and what the model price is. The good news is, it is holding up one of his structural levels and, obviously, the balance sheet has grown quickly as they are aggressively buying back stock. Appropriately priced. If it pulled back to the $24-$25 level, this would be very positive for the name.

Fighting a war against very aggressive competitors, especially Intel. It has always been a very competitive business. Prefers Intel, but it is expensive.

Bought this because this was a fragmented industry that has been consolidated down to 3 players. Historically pricing for D-RAM was quite volatile but there is a lot of pricing discipline now in the market. If there is more pricing discipline and less big new supply, then you could get a higher earnings multiple paid for the shares.

Likes technology as a group. There is a boom in content being distributed and in the need for storage. They make storage for tablets, phones, etc. Historically they were cyclical. In the last 2-3 years there was consolidation in the industry and now there are only 3 companies in the market. There is pricing power and discipline so there are not boom and bust cycles. Earnings multiple may expand because investors don’t have to worry as much about the future.

Semiconductor stocks have run substantially as investors are slowly starting to put their toe in the growth pond. A better semiconductor area to think about right now is Analog Devices (ADI-Q) which is effectively a play on automobiles and industrial production. If you believe that the economy is starting to improve, particularly the US economy, this is probably an interesting area to look at.