(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Micron Technology Inc.'s (MU) stock already has staged a precipitous decline, dropping 36% from its May high. But technical analysis suggests the stock is headed lower, by about 9% in the coming weeks. Options trades support that, and indicate the stock will fall 8%.
The bearish sentiment reflects analysts' cautious forecasts for 2019. Another headwind is that prices for DRAM memory chips, a key Micron product, are expected to fall sharply next year, according to an article on DigiTimes.
Weak Technical Chart
The charts show that Micron's stock is running into technical resistance around $40.25. Should the stock fail to rise above that level, the shares are likely to fall to $36.40. That's a decline of 9% from the current price of approximately $40. Additionally, the relative strength index is trending lower, and that suggests that momentum is leaving the stock.
Bearish Options Bets
The options market also suggests the stock may fall by expiration on January 18. The bearish puts outweigh the bullish calls by a ratio of 5 to 3, with 51,000 open put contracts at the $40 strike price. A buyer of those puts would need the stock to fall to $36.70, a decline of 8% from the stock's current price.
The longer-term also looks bearish. Analysts estimate that 2019 earnings will fall 13% as revenue climbs 1%. It suggests that Micron's margins are likely to come under pressure in 2019. Unless the fundamentals improve for the industry and Micron, the company's decline may continue.
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.