For what seemed like a very long time up until a few months ago, “value” was just about impossible to find in the stock market. A sudden rush up from the COVID lows, fueled in part by historically loose policy on both the monetary and fiscal sides, meant that most stocks were priced to include every possible good outcome, with the P/Es of all the major indices well above historical averages. Then, around the start of this year, prices began to fall as the Fed shifted tone, but that drop has not yet been met by falling corporate profits. In fact, earnings have continued to grow. As a result, multiples have, as these things tend to do, reverted to the mean. Consequently, there are now pockets of value to be found, even after a bounce back over the last two weeks.
Back in December, I highlighted three big tech stocks that I thought would do well in 2022 based on the seemingly inexorable global shift to automation and big data. Of course, being “tech,” the stocks all got hit earlier this year as the selloff was led by that sector. Two of them, IBM (IBM) and Apple (AAPL), have already recovered and are trading above their levels when I wrote that piece. If I were deploying cash now, though, my pick from the three would be the one that is still lagging, even after reporting yet another good quarter yesterday afternoon.
Micron Technologies (MU) has been a favorite stock of mine for years. The sensitivity of the stock price to fluctuations in the commoditized memory market made it a good “swing trade” instrument that moved consistently within defined ranges for long periods. I said in December, however, that my view of the stock had changed, and that it was now more of a long-term buy and hold target. That was true then, and it is even more so now at a lower price.
Back then, I pointed to trailing and forward P/Es of 16 and 9, respectively, and a PEG ratio of 1.0 as indications of value. Now, after continuing to beat expectations in revenue and earnings, the stock has a trailing P/E of around 12, a forward multiple of just below 9 and a PEG ratio of around 0.9. All of that screams value, even after the pop that will come today after earnings. But more significant in many ways is the confirmation by management in their comments of the trends that I identified in December, trends that will drive even more growth for years to come.
CEO Sanjay Mehrota said on a conference call following the release that data center business formed the core of their success last quarter, and that “We anticipate underlying demand in calendar 2022 to be led by increasing volume of data center server deployments, 5G mobile shipments and continued strength in automotive and industrial markets.”
Unless you think that data collection and analysis is just a fad or that a really major crash and recession are imminent, MU, which anticipated and got in front of that data center trend, is therefore almost a “must have” stock for a few years.
Most of all, its current price, multiple of earnings and prospects combine to make it that thing that has been so rare in the stock market for so long — good value in the traditional, measurable sense, which is good enough for me.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.