Tag Archives: Opportunity

AT&T's Merger Creates A Buying Opportunity
June 16, 2018 6:00 am|Comments (0)

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Micron: A Great Opportunity
April 12, 2018 6:14 pm|Comments (0)

After hitting a high of over $ 61 this past march, Micron Technology’s (NYSE: MU) stock lost around 17% of its value and currently trades at $ 50.48. The decline came after the company announced its Q2 results, which didn’t quite live up to the hype of investors, even though Micron set company performance records in key metrics such as revenue, gross profit, EPS, and cash generation, driven by a strong demand for their DRAM and NAND products in the automotive market.

Q2 Results and Guidance

In their latest earnings call, Micron announced revenues were $ 7.35 billion, up 8% from the prior quarter and 58% from the prior year, and non-GAAP operating margin was 49%, up 3% compared to the prior quarter and 24% from the prior year period. This reflects a positive business environment and broad-based demand for Micron’s memory and storage solutions (cloud, enterprise, and mobile markets).

As a result of their performance, the company generated $ 4.3 billion in cash from operations, compared to $ 1.8 billion in the past year. Capex (net of third party-contributions) was $ 2.1 billion, resulting in a very positive free cash flow of around $ 2.2 billion, especially when compared to last year’s free cash flow of approximately $ 600 million.

According to the company’s guidance, revenue is expected to be in the range of $ 7.2 billion and $ 7.6 billion, with a gross margin of 57%-60%. An increase in operating expenses is also expected, primarily from an increase in R&D (funding of fourth-generation 3D NAND technology). Based on a share count of approximately 1.25 billion shares, these results should drive diluted EPS to $ 2.83 (+/- 7 cents). The company will also continue to evaluate additional opportunities to accelerate de-leveraging, while still providing a high rate of return for its investors.

Micron expects DRAM demand, which accounted for about 71% of their revenue this past quarter, to grow by about 20%, while they expect NAND demand to increase by more than 45%.

With smartphones and other devices looking to include and improve features that are data intensive, Micron is offering power efficient LPDRAM’s and TLC Managed NAND’s. The LPDRAM’s, which are great at optimizing battery life, should be in high demand considering battery life is still one of the main problem with smartphones. The TLC Managed NAND’s are also great news, since Managed NANDs allows for increased speed and system performance, while saving resources in hardware and software development.

According to Micron, they are also working with automotive customers to provide the needed components to support the new features that require rapid data analysis and storage, such as machine learning and other AI capabilities. Working directly with automotive customers is great news, since this should translate to better integration and performance of their components, as well as higher satisfaction from their customers.

Micron’s broad technology portfolio and strong innovation engine position us well for these growth trends. We continue to partner with our customers to ensure our technology and engineering roadmaps deliver the critical features for tomorrow’s solutions.

-Sanjay Mehrotra – CEO, president & director

Their increased spending in R&D has resulted in better products and should continue to do so for the foreseeable future. Micron seems to be investing in the technologies with increasing demand, which should translate to increased sales.

Financial Indicators and Comparison

(Chart made with data from Finviz)

Looking at some industry key metrics, we find that Micron’s P/E of 6.04 is the lowest of its industry peers, which might indicate Micron is undervalued compared to its competitors. This statement is supported by the PEG ratio (price/earnings to growth ratio), which is used to determine a stock’s value while taking into account the company’s earnings growth. Ratios lower than 1 (0.20 for Micron) are considered as a sign that the stock is undervalued and thus the company should provide a higher return than its peers. Micron’s PEG is also the lowest of its competitors.

The company’s debt to equity ratio of 0.36 is healthy, considering that it’s close to the average of the comparable companies, and the profit margin of 38.7% is also a very positive sign, since it is clearly the highest of the companies analyzed. Also, the company has a solid ROI of 19.20%.

As seen in the liquidity ratios, Micron has a quick ratio of 2.10, which means they can pay their short-term obligations with no problems. Even though this ratio may be a little high, the cash per share ratio of (6.74), which measures the percentage of a firms share price immediately accessible for spending, tells us that company has available cash to spend on R&D, which is fundamental in this industry. This is also supported by the fact that the company hasn’t declared dividends, as they are heavily spending on product and technology qualifications, and the funding of their fourth-generation 3D NAND technology, both of which primarily impact R&D. From 2013 to 2017, Micron increased their R&D by around 77%, and I expect their increased spending in R&D to continue.

DuPont Analysis

(Chart taken from Finbox.io)

The DuPont model breaks down ROE into three separate components: net profit margin (how much profit the company gets out of its revenues), asset turnover (how effectively the company makes use of its assets) and equity multiplier (a measure of how much the company is leveraged). As seen in Table 1, MU’s net profit margin has increased for the last two fiscal years, reaching 33% in 2017, above each of the comparable companies. Regarding asset turnover, MU’s turnover ratio has maintained itself around 0.6x, slightly below the average of its peers. Finally, the equity multiplier has decreased from 2.0x in 2015 to 1.7x in 2017, meaning that the company has been deleveraging. These numbers are positive for MU, since they show the ROE of the company is increasing because net profit margin is increasing, and not the equity multiplier.

Price Targets and Fair Value Estimates

(Chart taken from Finbox.io)

Using 6 different models, Finbox.io calculated Micron’s average fair value at $ 66.79, which represents a 32.3% upside. In the chart above we can also see that the average price target for Wall Street analysts is $ 72.72 (44.05% upside). Similar to this number is the one provided by TipRanks, which consulted 22 analysts and found the average price target to be $ 73.67 (45.94% upside). Out of the 22 consulted analysts, 18 recommend strongly buying, 3 holding and just 1 selling, with the high projection being $ 100 (98% upside). However, in both Finbox and TipRanks there is a low projection of $ 35, which represents a 30.6% downside.


After losing money in 2016, Micron has been having nothing but positive results. Last year results were very encouraging, and that trend has carried over to this year. Business looks great, with Micron’s sales growing and demand expected to keep rising. With a heavy expenditure in R&D, we should expect new and better products, which should translate to higher revenue. Both their P/E (6.04) and PEG (0.2) ratios are considerably low, and their net profit margin has consistently risen for the past few years. Also, price targets and fair value estimates all point towards high upside. It’s clear then, that backed by solid financial metrics and a positive outlook, Micron’s share should rise in the near future.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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General Electric Capitulates Offering Interim Buying Opportunity
March 28, 2018 6:02 pm|Comments (0)

It has been one hell of a year for General Electric (GE) and its beleaguered shareholders. Bullish investors have suffered mightily watching their funds evaporate as the stock fell 65%, punishing anyone in the name.

Yesterday, the Wall Street Journal published a relatively bearish article that allowed traders to pile on to the downside with the stock breaking the $ 13 level and trading down to $ 12.70. That matched a low not seen since the heart of the financial crisis.

I read the article but did not see a real reason to spin it as a sell sign. There was no new news there. In my view, this is the type of situation that happens when a stock is capitulating and media outlets pile on, kicking a company when it is down.

As I watched GE hit $ 12.70, I thought to myself, is this company needing a loan from Warren Buffett? No.

Are we in a financial crisis with a contracting economy? NO.

Is sentiment as bad as I have ever witnessed in GE? YES. I then pushed the buy button and added to an upside down position with reservations.

Here are few questions for the average investor to keep it simple.

  • Are conditions better for GE now than they were in 2009? I think the answer is yes.
  • Does GE have more or less shares outstanding than 2009? It has less shares outstanding.

Here is a chart showing the share count for interested investors.

Source: GE macrotrends

As you can see, the share count was over 10B in 2009, it is now around 8.6B shares.

  • Is the global market in which GE operates in recession? No, as a matter of fact, the world economy is growing in sync for the first time in over a decade.
  • Is the negative news overdone? Are we dealing in reality or is the market trading on fear?
  • Is there a positive catalyst that can take the stock higher? That is a little more difficult question to answer. For me, the answer is maybe.

GE has been a huge disappointment for many years. There have been hundreds of articles over the last few months about GE and all of its problems.

I would like to take a moment to focus on Price and entry points.

What is GE worth?

Today, the stock is worth $ 13.32 a share as I write this article. Yesterday, it was worth $ 13.23 to $ 12.70. I think the sell-off is way overdone, but the fear factor is real, and the margin calls are real.

My downside price target of $ 12.80 was hit yesterday. To me, it is worth $ 12.70. I bought it yesterday from $ 12.71 to $ 12.92. I may sell the rally, trading around my position and trying to get out with my scalp. I think the stock is worth around $ 15 to $ 18 a share by June 2019.

Bottom line is this: GE is a global digital business. The stock price will vary from day to day. Sometimes, it will trade at a significant discount to the business and its underlying fundamentals.

In my view, $ 12.70 represents a value that will cause the bulls to step in and stage a rally that could last into earnings.

Here is a look at a 10-year monthly chart.

In looking at the monthly chart above, one can see the sell-off in 2008 and 2009 and the 10 years that follow. Very few traders in the markets thought the stock could go down and break $ 13, but I did.

I wrote an article back in January stating more capitulation to come. In that piece, I wrote that GE could break $ 13 after hearing about the $ 22B GE Capital bombshell. I set a buy target of $ 12.80 back then and decided to stick with my unemotional thesis based on behavioral finance.

Important Note: GE only traded under $ 13 for a few short months in 2009 when the financial world was burning down and fear was everywhere. It is a very different world now, and in my view, GE is going to be fine.

Is GE a buy three months later at $ 13?

Maybe, if there is evidence of a solid sustainable turnaround and the clouds of uncertainty are raised. Right now, uncertainty is everywhere. There are far better stocks to buy that are going up, stocks with great earnings growth.

Mario Gabelli was buying GE in January at $ 16.

Two months ago, Kevin O’Leary said he would buy it at $ 13.

Now, Mr. wonderful just said on CNBC that he wants to buy the stock at $ 7 to $ 8. I get it. I have done the same thing many times. However, the market makes all of us look a little silly at times, and while GE may hit $ 8 a share, in my view, it is highly unlikely.

It is normal behavior to watch a stock get way oversold on highly negative sentiment and not be able to pull the trigger; only to watch it go on a quick 15% to 20% sharp rally with you on the sidelines.

This type of arrogant attitude is bullish to me as it may embolden shorts which could help the stock rally near term. He says “it can go to $ 8 easily.” I disagree. That was the height of hysteria, and the reason it went to $ 5.65 was a fake news story about BK, which was false. I bought it that day and owned it on March 9th when the market bottomed with a cost basis of $ 8.28.

It might be better to put your money into financials like Bank of America (BAC) under $ 28 or Citigroup (NYSE:C) on weakness. They are both growing earnings and raising dividends. Rising interest rates will do wonders for their bottom lines. Apple (AAPL) is a cash-generating monster with a continuing revenue stream and great margins.

The market is ignoring any positive news coming from GE at the moment

The new $ 1.3T government spending bill will likely be a huge positive for GE going forward. It stands to make some great profits on all different types of defense spending, which is totaling $ 700B. That is extremely bullish for GE and its future, but when a stock is in capitulation, many investors cannot ignore the noise.

Look at this slide from a JPM presentation showing what it makes for defense spending. The market is missing the boat with GE and its prospects for the future, in my opinion.

Bear case

GE Capital is going to be a drag on earnings for years to come. The $ 22B hit that the company took on the last conference call scared the hell out of most investors, including me.

Margins are getting squeezed with profits down 88% in the power division.

GE pension problems are out of control. (I disagree).

The Alstom acquisition is a disaster, and it will never be able to make the business model work.

SEC headlines in regard to GE Capital will remain a risk to the stock.

Bull case

Extreme pessimism around the stock is a contrarian play. GE has intrinsic value, but the market is not giving any value to GE as a company. Enterprise value is how much? Zero? I am not an expert, but as a long-term trader, I would give the company a minimum value of $ 5 for enterprise value, and in my view, that is conservative.

Aviation earnings should do great as worldwide jet engine growth spending ramps up over time.

Earnings report on April 20th should be terrible

I am expecting an earnings miss and more write-downs on the next call. I expect nothing good to come out of energy this fiscal year. This may be the worst quarter of the year for GE. Any positive news and clarity around GE Capital could pop the stock 10% overnight. A major earnings miss and investors could see a sell-off that takes the stock to new lows.


GE is in the dog house, although today is the biggest rally day in many years. The stock has hit a capitulation level that I believe could launch an interim rally as bulls force short covering going into earnings.

The company’s share count is over 2 Billion shares lower than 2009. The global economy is buzzing along with synchronized growth. While GE has problems, the company is slowly working through its issues.

I am not bullish on the name but believe that an interim rally point may have been reached at the $ 12.70 level. Today’s trading activity is a good sign for beaten-down shareholders suffering under years of bad management.

April 20th is the next report card for GE. Investors will be looking for clarity on GE Cap. and free cash flow growth. I see GE going nowhere fast as this year will be a reset. While I am long the stock, I will be looking to exit and hedge on rallies.

An announcement of a big-time investor like Warren Buffett could pop the stock 5% to 10% in a heartbeat. Investors will be watching closely to see who the new whale is jumping into GE.

Short squeezes are the start of many individual stock rallies, and they can happen very quickly and keep going, wringing out shorts. From there, improving fundamentals can take a stock higher.

As always, I encourage investors to do their own due diligence and make their own decisions and always have an exit strategy in place before making any trades.

Disclosure: I am/we are long GE.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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