HI Donald,
Thank you for your very thoughtful response. Your reasoning is quite sound from my perspective.
but you looked at the market enough(weekly, monthly) and were very aware of "cycles" in the market and certain individual stocks like Micron. You may very well do what many of the article writers argue is the prudent approach and sell Micron because the top in price is near and I can buy it in another year or so. After all Yahoo and Zacks consensus is earnings are only going down from here. Now here is the "kicker". Let's say I wait until Micron hits $10 a share again and I take my $96000 and buy 9600 shares of Micron. Now I wait another year of so and I sell it again at $35 a share(inflation you know).
MU Free cash flow is really shockingly bad....
3.The cash flow risksA sudden reversal in memory chip prices would devastate Micron, because its free cash flow has remained negative over the past year. That's mainly due to the prior drop in memory prices, higher R&D investments, and its acquisitions of SSD controller maker Tidal Systems in 2015 and Inotera Memories in 2016.
DATA SOURCE: YCHARTS.
If chip prices unexpectedly drop on market consolidation, lower device sales, or overproduction, Micron's FCF could plummet to multiyear lows.
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some interesting comments from Brian Gilmartin...from seeking alpha.
One trend in the numbers that caught my eye was the way the 2019 estimates are starting to flatten and actually decline a bit. The end to fiscal 2018 is still 15 months away so much in terms of the fundamentals can change, but the trends in the 2019 EPS and revenue growth rates are worth paying attention to, after this Micron earnings report.
Here is what is rarely discussed:
MU's free cash flow is negative this past year and their Capital Expenditure is 181% of cash flow.
that's bad news... INTC has CAPX of 71% which is still pretty high... TXN has really developed at CAPX light model with CAPX only 11% of CF.
Brian's article is essentially making your case... he's in the stock but with very small exposure to it in his portfolio and is ready to bail. Technical resistance is two bucks above the current price.
seekingalpha.com
He makes the point in closing"
To be frank with readers, Micron is on a very short leash for clients today. The stock price will drop in a hurry well before you see fundamental changes.
The recent weakness in the Nasdaq which started June 8 '17 was mostly led by the semiconductor sector. Micron will not be immune to the cycle.
June 9th was a prolific short term inflection point for NVDA, SMH, FB, AMZN, AAPL, NFLX, GOOGL, the NDX...
so we shall see. I don't think it makes a lot of sense to hang around long in Micron at this point from a risk/reward perspective...
This missive by Electric Phred on seeking alpha has 665 comments!!!....
that's by far the most I have ever seen on Seeking Alpha.
seekingalpha.com
The fact that so many people are commenting on an MU article is telling from a mass psychology perspective.
That sounds like more of a upper end part of the price cycle phenomena than a bottom of a stock price cycle behavior.
John |
