While today’s sell recommendation may still have room to grow in the expanding smart phone memory market, it’s prudent and timely to take some profits.
Micron Technology (MU)
from Capitalist Times, recommended at $13.80 in Investment Digest 748, August 21, 2013.
Shares of Micron Technology (MU) have rallied by 57.8% since we added the stock to our Wealth Builders Portfolio on July 22, 2013.
Cheaper smartphones remain the most popular devices in rapidly growing emerging markets—a significant barrier to entry for Apple and other names that have focused on higher-end products.
This trend holds particularly true in China—the world’s largest smartphone market—where local handset makers such as ZTE Corp (Hong Kong: 763) and privately held Xiaomi continue to win market share.
Rather than trying to pick a winner amid the vicious global war for dominance in the smartphone market, we focused on a more profitable trend. Modern smartphones, tablet computers and laptops require a lot more memory than similar devices made two years ago.
The capacity of NAND flash memory in the average mobile phone has more than doubled to almost 10 gigabytes since 2011. Over the same period, the storage capacity of solid-state drives (flash memory that functions as a hard drive) in laptops has jumped to more than 130 gigabytes from 84 gigabytes.
Our investment thesis for Micron Technology rested on three pillars: rapidly growing demand for memory, reduced competition because of industry consolidation, and a focus on rolling out new technology that should limit manufacturing capacity and prevent an oversupply over the next few years.
Shares of Micron Technology shot up after the world’s second-largest memory producer, SK Hynix (Seoul: 000660, OTC: HXSCL), suffered a fire at a major fabrication facility in China. This unforeseen disruption constrained industry production, tightened supply and pushed up memory prices.
Our call on Micron Technology has been correct in both relative and absolute terms: The stock has rallied by 57.8%, compared to the S&P 500’s 6.5% gain and the 34% return posted by shares of Apple over the same period.
Micron Technology’s stock could rally further in the near term. But at this point, the easy money has been made. With SK Hynix’s fire-damaged plant restarting operations in November, memory supply should recover over the next two quarters.
With shares of Micron Technology up more than 50% in less than six months, we have to ask ourselves if we would buy more of the stock today. Sell Micron Technology and book a 57.8% gain.
Elliott Gue & Roger Conrad, Capitalist Times, www.capitalisttimes.com, 888-960-2759, December 4, 2013