Winning Stock Forecast: Micron (MU) On the Path to Success Despite Staggering Stock Prices

[Source: Wikimedia Commons, May 15th, 2018]

“Near-term conditions are in fact exceptional, and the exceptional cloud spending that has driven such conditions seems likely to persist. So, our ‘stronger for longer’ thesis remains intact.”

–Morgan Stanley Analyst Joseph Moore

Micron Technology 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. Over the past 12 months, Micron Technologies stock has risen from its original price of $28.90 to $51.80, jumping a whopping 79%. Additionally, Micron stock has outperformed the market by nearly 65% over this time period. But that doesn’t mean it has been only smooth sailing, despite the significant rise, shares are nearly 13% off their 2018 highs. The following explanations give rise to the rapid increase in MU stock despite the industries characteristic volatile movements.

Micron Technology underperformed the industry-wide Server DRAM market in 2017 despite forecasts of strong growth in the sector. Additionally, internet protocol traffic in public clouds data centers is expected to nearly triple from 96,054 Petabytes per month in 2016 to 278,108 PB per month in 2021. Server DRAM demand is forecast to increase from 17,789 million Gb to 98,218 million Gb – a 452% growth between 2017 and 2021.

[Source: Yahoo Finance, May 15th, 2018]

Micron May Break Out Leading to a 15% Rise

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.

[Source: MU data by YCharts, May 15th, 2018]
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 2018. 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.

DRAM Analysis

Table 1 below is an update on MU’s performance in 2016, where Server DRAM represented 10% of MU’s sales compared to 9% for the entire industry. For 2017, MU’s Server share of revenues increased to 15%, but industry wide, Server shares represented 19% of the market.

According to MU’s 10-K, for 2017, “20% of the company’s net sales were to the compute and graphics market (including desktop PCs, notebooks, and workstations); 20% were to mobile

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