Key Points
After three straight days of selling, Micron (NASDAQ: MU) stock rebounded on Monday, rising 4.3% through 2:05 p.m. ET.
You can thank Morgan Stanley for that… and UBS, too.
Memory stocks are still in fashion
Let’s start with the news from Morgan Stanley, where analyst Joseph Moore sees last week’s Micron sell-off as a buying opportunity.
As StreetInsider.com reports, Moore admits that “data center strength is the only cause” for this year’s incredible demand for memory chips. That sounds like bad news — this stool has only one leg to stand on — but Moore’s not worried. Shortages of memory chips continue to worsen, says the analyst, and Q3 memory prices will rise 25% from Q2.
Micron could grow by shrinking
Higher prices for the memory chips Micron sells mean more profit for Micron. More importantly, they mean more cash for Micron — and that’s the crux of the report UBS just filed.
Micron will generate “a prodigious amount” of free cash flow over the next few years, predicts UBS analyst Timothy Arcuri — as much as $400 billion in cash profit between now and 2028 — and he thinks the company may use some or all of this cash to buy back its own stock. If he’s right about that, Micron could conceivably buy back as much as 40% of outstanding shares when all’s said and done, cutting its share count nearly in half, and concentrating profits among the shares that remain.
What would this mean for profits? Well, net profit wouldn’t change in this scenario, but profit per share could explode higher, nearly doubling on top of whatever growth in profit the company would already make from selling more chips, and selling them at higher prices.
Count this as one more great reason to buy Micron stock.
Should you buy stock in Micron Technology right now?
Before you buy stock in Micron Technology, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Micron Technology wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $371,842!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,244,783!*
Now, it’s worth noting Stock Advisor’s total average return is 900% — a market-crushing outperformance compared to 207% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.
