(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Micron Technology Inc.'s (MU) stock may be ready to rebound by roughly 10% in the coming weeks, based on how traders are betting in the options market. The chipmaker's stock has been on a roller coaster ride thus far in 2018, but despite all the ups and downs, the shares are up by over 34%—easily beating the S&P 500 rise of just 4.5%. (For more, see also: Why Micron's 2018 Stock Gain Last.)
The technical charts are also pointing to the stock rising in the coming weeks as well. The bullish outlook for the stock has reemerged recently and is likely due to the improving longer-term outlook for the company, as analysts up their forecast for the coming quarter, and for fiscal 2019.
The options due to expire on August 17 have been seeing increasing interest at the $60 calls. The number of bets placed shares of Micron will rise have more than doubled since the middle of June, with open interest surging to over 24,000 open contracts. The $60 call costs about $1.30 per contract, and a buyer of those calls would need the stock price to rise to about $61.30 to break even if the options are held until expiration, a rise of 10% from the stock’s current price of $55.75.
The technical chart also suggests that the stock may be due to rise in the coming weeks to about $58, a jump of about 5%. That is where the price would run into a bearish technical downtrend. But should the stock be able to break out, rising above that bearish downtrend, then shares may be able to climb all the way back to roughly $61.50. Additionally, volume levels have been steadily dropping, and that may suggest that the selling pressure is now decreasing. Furthermore, the relative strength index, although trending lower, appears to be attempting to break out and that could signal bullish momentum coming back into the stock.
One reason the bulls may be coming back is the outlook for the coming fiscal fourth quarter. Analysts have been raising their outlook over the past month, with earnings estimates rising by nearly 6%, and revenue estimates rising by over 3%. Forecasts are now calling for earnings to increase by over 64% in the quarter, while revenue is expected to grow by over 34%. (For more, see also: Why Micron's Stock Plunge Will Only Get Worse.)
MU EPS Estimates for Current Quarter data by YCharts
The outlook for fiscal 2019 is improving as well, with earnings estimates revised higher over the past month by over 9%, and revenue revised up by over 4%.
MU EPS Estimates for Next Fiscal Year data by YCharts
It would seem for now that the bulls are starting to get involved once again in Micron, and if the business outlook continues to improve a short-term rally may turn into something longer term.
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.