Micron Nears Resistance Ahead of Earnings

Micron Technology Inc. (MU) ended 2020 at a 20-year high above 75, booking an impressive 40% annual return. It’s the first chip manufacturer to report earnings in January, with Q1 2021 results set for release after Thursday’s closing bell.  Wall Street analysts now expect the memory giant to book a profit of $0.67 per-share on $5.63 billion in revenue. If met, earnings-per-share (EPS) will mark a 39% profit increase, compared to the same quarter in 2020.

Buy The Pullback

The stock is still trading more than 20 points below the Internet bubble peak posted in the summer of 2000. The vast majority of chip stocks have cleared that formidable barrier, highlighting more than a decade of sub-par performance. However, it’s now engaged in a strong uptrend after mounting June 2018 resistance in the mid-60s and pullbacks should mark buying opportunities as the rally works through the last pockets of overhead supply.

Cowen analyst Karl Ackerman raised his target from $75 to $80 in December, noting, “we raised our estimates and expected a beat-and-raise following MU’s Technology Roadmap, but the company subsequently articulated an even stronger outlook than we expected. We’re raising our target to $80 as we true-up our model on higher numbers. Demand has improved, inventory days should recede, and limited capex investments (particularly in DRAM) should tighten supply and demand.”

Wall Street and Technical Outlook

Wall Street consensus brightened considerably in 2020, lifting to a ‘Strong Buy’ rating based upon 17 ‘Buy’, 1 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $35 to a Street-high $100 while the stock closed Friday’s session and 2020 about $4 below the median $79 target. This humble placement should support additional upside in the first quarter, especially if the company beats top and bottom line expectations this week.

Micron sold off after a multiyear uptrend stalled in the 60s in 2018, finding support in the upper 20s at year’s end. It rallied within a few points of the prior peak in February 2020 and collapsed with world markets, reversing just three points above the prior low in March. Buying interest then surged, generating a strong recovery wave that mounted resistance in November. Price action added another 10 points through December, setting the stage for a strong start to 2021.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Three Chip Stocks Hitting New Highs

PHLX Semiconductor Index has posted fabulous returns so far in 2020, lifting more 40% since the last trading day of 2019. Sadly, many well-known names topped out with broad benchmarks in September and are working off overbought technical conditions through trading ranges or lower prices. As an alternative, let’s look at a smaller group that’s hitting new highs as we wrap up the month of November, well-positioned for even higher prices between now into year’s end.

A number of 2020 sector leaders have taken market share from Intel Corp. (INTC), which has fallen from grace after a series of self-inflicted wounds. The Dow component has lost 21% so far this year, in stark contrast with the broad-based SOX index, piling up misfires and delays driven by weak management and poor execution. The old school behemoth has lost significant business to more nimble rivals and could descend into oblivion in 2021.

Micron Technology

Micron Technology Inc. (MU) makes memory chips. The stock has booked a respectable 19% return this year but the rally off the first quarter low tells an even more bullish tale, doubling in price and lifting into a critical test at May 2018’s high in the mid-60s. A breakout could presage outstanding 2021 upside because the advance will face little resistance into the all-time high in the 90s, posted at the height of the Internet bubble in 2000.

Applied Materials

Applied Materials Inc. (AMAT) makes semiconductor equipment for mainstream and leading-edge fabrication and is benefiting from the developing technology war with China.  The stock has risen 36% so far in 2020 and just completed a massive cup and handle breakout above the 2000 high in the mid-50s. In addition, it’s gained more than 40% since the end of October, capitulating on strong Q4 2020 top and bottom line results.

On Semiconductor

On Semiconductor Corp. (ON) makes chips for power generation, electric vehicles, cloud computing, and industrial production. It’s lesser known than other chip stocks in this review but has also benefited from Intel’s misfortunes, with accelerating sales surprising many analysts. The stock has just broken out above the March 2018 peak in the mid-20s and is trading at an all-time high. It’s also more than tripled in price off the March 2020 low at 8.17.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.