Micron (NASDAQ: MU) trades at a frighteningly low P/E of three times, a deep value metric that failed to stop the stock from falling steadily since June. Storage stocks are on a fire sale, with Seagate Technology (NASDAQ: STX) at a 6.4 times P/E and Western Digital (NASDAQ: WDC) at seven times. Clearly, depressed valuations do not matter. What is holding these stocks down?
Until the industry works out the NAND supply glut and weak pricing power, these three stocks will lead the technology sector lower. WDC and STX offer comfort with their dividends, while Micron’s modest valuations will attract value investors.
WDC has 15-terabyte drives that could offset the weak pricing for its other products. Customers still have extra supply to work through.
Operationally, the firm may keep its capacity utilization as high as possible to sustain profit margins. All the while, revenue may drop as supply and demand levels line up.
Micron needs to operate in a climate where DRAM pricing could fall again in Q4, or in the 8% - 10% range. A low double-digit drop in NAND price will also put pressure on Micron. But at an extremely low valuation, investors will benefit from much of the downside priced into shares.
Takeaway
Macro uncertainties will dominate MU, STX, and WDC on the markets. Those investing in this sector will need at least a two-year timeframe to let the supply excess and price recovery play out slowly.
