(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Micron Technology Inc. (MU) is nearing a potentially big breakout, one that may result in shares jumping by nearly 15%, to roughly $61.50, from its current price around $53.50. Shares of the chipmaker have risen by almost 85% over the past year, easily beating the S&P 500’s return of just 14%. But that doesn't mean it has been only smooth sailing, despite the significant rise, shares are nearly 13% off their 2018 highs.
The charts aren't the only thing suggesting shares will continue to rise, because analysts have been aggressively upping their price targets on the stock. Since March 8, analysts have raised the average price target on the stock by nearly 21.5% to about $71.50, according to data from YCharts. Of the 30 analysts covering the stock, about 80% of them rate the shares either a buy or outperform.
Micron shares have recently emerged from a technical pattern called a descending wedge, which is a bullish reversal pattern. It serves as an indication that Micron has likely reversed the recent downtrend from mid-March through early May. Additionally, Micron found a stable level of technical support at $45.25 at the start of May on two separate occasions, another bullish technical pattern, known as a double bottom. Shares currently sit just below a critical technical resistance level at $54, and should it rise above resistance the stock could very well be back on its way toward $61.50.
The relative strength index (RSI) has also turned positive after bottoming out on three occasions around 37. Additionally, the RSI is now beginning to trend higher, and with a reading around 60, it still has a distance to go before reaching overbought conditions around 70. Volume has also been tapering off since mid-March, and that may indicate that sellers are now backing away from the stock. Ideally, one would want to see a surge in buying volume on a breakout above $54.
The long straddle options strategy suggests that shares of Micron may rise or fall by about 11% by expiration on June 15 from the $55 strike price. The cost of buying one put and call is about $6, and that places the stock in a trading range of $49 to $61. But more interesting is the ratio of puts to calls, which heavily favors the calls by nearly 12 to 1, with almost 55,000 open call contracts to roughly 4,600 open put contracts.
The charts, the analysts and the options are all suggesting shares of Micron will rise. The only thing left is for Micron to actually break out.
Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.