Micron’s (NASDAQ: MU) 8% drop and 9% decline for the month (as at Friday, June 29) is puzzling. Either the chart’s “double top” between March and June is playing out or the market is irrationally and inefficiently valuing Micron stock at a 5 times P/E (4.5 times forward earnings).
Last week on June 25, the U.S. Treasury Secretary’s tweet about U.S./China added unacceptable levels of uncertainties for the semiconductor stocks. Despite very solid global demand for flash memory and tight supply, markets assumed the trade restrictions would hurt revenue. Micron’s management did not forecast any such hindrances.
The market’s inability to understand trade wars is creating another buying opportunity for investors who missed Micron’s last rally. Fundamentals imply the fair value on MU stock is well-above the $60 - $70 range. Some analysts were so bullish on the stock that they collectively raised their share price target to the $80 - $100 range.
Trade wars are ugly and scary for investors. No country wants to slap tariffs on each other because it hurts world trade and the economy. Resolving the differences will take time. As nervous investors prefer to wait and see, those who are confident in Micron’s future will get a big reward as the share price moves towards its fair value that is at least 40% higher.
