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Aug 27, 2021
[5 min Read]
Most great semi stocks are already priced in or overvalued, and we smart experienced apes know that you never buy overvalued stocks because its potential gain is small and its potential loss is too big.
Therefore, we need to buy the stock that is undervalued but eventually goes up to meet its price target later because of its strong fundamentals and future growth (which is MU). And why do we need to pick semi stocks for this? Because Semiconductor business is one of the most potential and profitable business in the whole industry; we simply think that everything is turning to digital and AI systems, and all those devices, platforms, and servers need memory chips. Biden's infrastructure bills and his willingness to support semi industry are also tailwinds of semi stocks.
Ok, so why MU is the most undervalued stock among all semiconductors now?
Because it is ridiculously cheap! 7x forward price to earnings multiple now, and even though it actually have a slowdown in memory chip industry, it is still 10-12x forward earnings which is still ridiculously cheap compared to other semi stocks. (According to Quint Tatro, Joule Financial founder at CNBC).
MU's 52 week high is 96.96, and its current price is 72.77. It showed some high volatility and corrections after its ATH because it went up too fast in short time (52 week low is 43.67). The last large correction made MU's price down from 83 to 68.80 which was 17% down in 4 days. This correction happened because of Morgan Stanley's report that says 'winter is coming' for semis. However, all other institutions and investors, including Goldman Sachs, Bofa, Jim Cramer, think that MU is way undervalued, and its price is at the bottom now. Vanguard Group, Sanders Capital, and State Street, top 5 MU shareholders, added MU positions between August 6 to August 16 . Since many institutions and large investors start to buy MU back, its price went up from 68 to 77, and then it dropped to 73 today due to the red market and some sell offs.
Reasons why this is a great timing to buy MU now
As you can see, MU is -23.64% from 52 week High on August 25, it has a more discount today since it dropped to 72.77. Ok, then we might doubt about its fundamentals and its future growth. Don't worry, here is why most analysts and institutions think MU is super undervalued and it is time to buy now.
Their EPS and Revenue growth are also great too (beating all estimates for over 2 years).
Morgan Stanley, aka sneaky bitches, revealed a report 'winter is coming' or whatever, saying that DRAM memory chip price was already at the peak and it is going down now which will lead all DRAM company's profit to go down due to its historical data. However, most institutions and investors still believe that DRAM's demand is still too strong enough to cover that DRAM price drop, because all PCs, Servers, Laptops, smartphones, tablets, robots, cars, and anything that has automated computer system needs 'memory chip'. Semi industry has a bright future, and I think Morgan Stanley's report was just a manipulation in order to short the stock and buying it back at discounted price. This asshole bought SK hynix (2nd largest DRAM company) shares back after its correction in Korea. Its price was 120,000 Won before MS's report, and it dropped to 98,000 after its report and they started buying back from 100,000 now. I still strongly believe that this stock will keep going up before tapering. (I hope the Fed does not mention about tapering at Jackson Hole).
RSI number is important because we can know if the stock is overbought or not. The current market sentiment is unstable due to upcoming tapering, interest rates, inflation, national debts, infrastructure, etc. and most overbought stock have a high chance to meet its huge corrections later. Ok, so MU's current monthly RSI is 57. It is still in the middle which is a great number for tech growth stock. For example, Nvidia's monthly RSI is 86, AMD's monthly RSI is 85, AMAT is 75, TSM is 76, Qualcomm is 65, and ASML is 93. RSI does not explain everything, but it helps you to know that MU is pretty undervalued.
Most great investors always say 'being simple is the best strategy'. I also believe that. Simply, we will make the money if we buy the GOOD stock in cheap way and sell it in expensive way. And simply, MU, a GOOD stock, is cheap now.
Here is a better explanation about MU itself (my first MU DD) that shows why MU is a GOOD stock. https://www.reddit.com/r/wallstreetbets/comments/osbr7k/micron_will_eventually_rally_5080_upside_potential/
There is a high chance that the Fed will not mention about tapering at Jackson Hole meeting because of Delta variant problems and slower than expected economy recovery. If they don't, tech stocks have a higher chance to get pumped for a while, and indeed, undervalued stocks have the highest chance to soar. So I personally strongly believe that few more tailwinds can drive MU price up to 20-30% before its next earnings (Sep 27), and 60-100% in 3-6 months depending on market sentiment.
Its current price targets are: Yahoo avg 115.59, Seeking Alpha avg 111.76, Marketwatch avg 115.85,
Tip Ranks: 112.64, Marketbeat: 112.07, CNN: 112.50. Total Average PT: 113.40.
It is simple, but actually not easy. Buy it now since it is turning to bullish, and sell the news before it actually tanks again. If the tapering is coming? Buy the PUTs or wait until the price became cheap again with healthy correction. And then we get in the ride again when it starts pumping again. I think that is how you can survive in this stupid unpredictable market. I sometimes use option straddle strategy during this unpredictable market because all you need to do is choosing high volatility stocks (I might use this strategy for MU later since it has a high volatility, and the current market is unpredictable).
My positions: 24 Sep 72c x 7 , 24 Sep 68c x 10, owning 100 shares.
Indeed, this is just my DD, no financial advice.
Thank you guys.