Micron Technology: Weakness Already Priced In, Buy MU Calls

Micron Technology (NASDAQ:MU) has my attention today after the stock delivered decent second quarter results in yesterday. It appears that Micron did something right in the last quarter and investors are pleased as the stock marks a 1.03% gain to $27.41 as at 11:53AM EDT today. The current trading price marks a 30.39% premium to the stock’s 52-week low of $21.02 and it marks a 33.49% discount to its 52-Week high of $36.59.

Background Info

Micron Technology with its market capitalization of $29.39B is a global manufacturer and marketer of semiconductor devices, principally NAND Flash, DRAM and NOR Flash memory, as well as other memory technologies, packaging solutions and semiconductor systems for use in computing, consumer, networking, automotive, industrial, embedded and mobile products.

Takings from Micron’s Earnings Release

As I have mentioned earlier, Micron delivered its second quarter (Q2 2015) earnings report yesterday. I need not bore you with the details of the earnings; you can find the full press release here. However, you’ll be interested in knowing that the company reported Q2 adjusted EPS of $0.81 to beat the consensus estimate $0.73. In addition, the company’s revenue was decent at $4.17B to mark a 1.4% year-over-year increase and to beat the consensus estimate of $4.16B.

Other notable points in the earnings release include the fact that NAND Flash products revenue increased by 3% on a sequential basis while also recording 12% year-over-year growth. However, DRAM sales were down 9%. Going forward, Micron expects its third quarter revenue to be between $3.8B and $4.05B below the consensus analysts’ estimate of $4.29B

Interesting Chart Pattern

MU Chart

The chart above (with my annotations) shows how the shares of Micron have traded within the last one year. From the chart, you’ll observe that the stock has traded with a $27 support in the last one year while trading with a $34 resistance within the same period. Interestingly, the shares of Micron have dropped below the $27 support in the last week to somewhere around $26 trading price. However, the stock has started a remarkable uptrend that saw it rising above that $27 resistance; hence, we can realistically expect to ride the bullish momentum towards a $30 trading price in the coming weeks.

Weakness Priced Into the Share Price

The shares of Micron have suffered in the year-to-date period as the stock shows a 21.93 decline in the first three months of this year. However, much of the weakness seen in Micron’s share price can be traced to the irrational fear that the stock has reached a top after it gained more than 76% in 2014. The week guidance provided in the last two quarters has also not helped to give the stock a positive image.

Nonetheless, I posit that the real and imagined fears about the prospects of Micron have already been priced into the stock. What has largely been ignored in almost all of the calculations about Micron is the positivity that the stock has on the horizon. For instance, not many people have thought out the potential effects of the joint venture that Micron entered with Intel.

How to Trade MU Options

Don’t join the bears who are screaming that the sky is calling for Micron Technology. The company’s next earnings in report will be filled with a number of pleasant surprises and it will be in your best interests to pitch your tent with the bulls on Micron. I recommend buying the MU Jul 2015 30.000 call (MU150717C00030000) at an asking price of $0.88. Remember to set stop/limit loss order at $0.80.


— Daily Option Alerts

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