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Micron remains a hot buy on attractive valuations

On March 13th, we had written an article on the efforts taken by the semiconductor chip manufacturer Micron Technology Inc. (NASDAQ: MU) to increase its market share.

Additionally, we had also mentioned our intention to invest in a call option to gain from the stock’s uptrend. The stock was trading at about $25 at that point in time. The option expired in the money as the stock rose to about $28 in a week’s time. In fact the stock continued to rally and reached a high of $32.28 last week. Despite a note of caution issued by Goldman Sachs on tech stocks, we believe that Micron would forge higher due to reasons provided below.

Fear of overstretched valuation took a toll on tech stocks in mid-June, following the release of a Goldman Sachs report. However, most of the stocks have regained the lost boundaries. Micron, on the other hand, did not move down much. It is mainly because of relatively cheap valuation. The stock is trading at a forward PE ratio of 7. Considering the rising demand for memory chips and consolidation in the semi-conductor industry, the stock continues to attract investors.


The Boise, Idaho-based company hit headlines recently when investors became concerned about reports of potential threats from Chinese semi-conductor suppliers. There was a talk about how Chinese suppliers can disrupt the entire supply/demand fundamentals of the industry. However, Harlan Sur, an analyst at JP Morgan, has clarified that such concerns are overblown and Micron will continue to remain a leader in the memory chip industry in the foreseen future.

Sur’s argument stems from the fact that China is at least one or two generations behind industry leaders and will remain so for the next decade or longer. Analysts at JP Morgan also reaffirmed their overweight rating on Micron.

The opinion of Sur was echoed by Morgan Stanley’s report, which states that the Chinese manufacturers do not pose a threat to mainstream suppliers over the next three years, given the limited possibility of sharing intellectual-property and steep chip-design learning curves.

In another development, the company announced that it has appointed Sumit Sadana as executive vice president and chief business officer. Sadana, who holds a master’s degree in electrical engineering from Standford, will be responsible for driving the company’s corporate strategy and business development. He also serves the board of Silicon Laboratories (NASDAQ: SLAB). Thus, fundamentally, we forecast the stock to remain bullish in the short-term.

The historic price chart indicates strong support for the stock at 30.80 levels. A linear regression channel drawn along the price movement indicates that the uptrend is intact. The RSI oscillator with a reading above 50 confirms that notion. So, it would be wise to open a long position near the support levels.

Micron Stock Price: June 28th 2017

Micron Stock Price: June 28th 2017

Thus, in the current scenario, as a binary trader, we wish to open a long trade in Micron by purchasing a call option expiring in a week after the purchase. We would enter when the stock trades near 30.80

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