Today we came across Micron Technology Inc. (MU). The current P/E of 4.29 stood out in stark contrast to the much higher multiple of S&P 500 of 20.7x and the 5-year average of 16.5x. So is Micron a value or a trap? Top and Bottom Line Returns Would Say It’s A value Micron Technology Inc. (MU) grew top line and bottom line results at double digits during the last two fiscal years. Revenues increased from $12.4 billion in 2016 to $20.3 billion in 2017 and $28.1 billion for the TTM. Gross margins have increased from an average of 23.55% during the last five fiscal years to 41.5% in 2017, 56.4% in the TTM, and guidance between 57% and 60% in 2019. Cash flows from operations has increased from $3.1 billion in 2016 to $8.2 billion in 2017 and $15.5 billion for the TTM. The company currently ranks third in DRAM market share, after Samsung and SK Hynix. With Samsung being a more diverse company, SK Hynix provides a better comparison. Profitability and efficiency ratios show a very tight correlation except in one regard, PE. Micron’s PE is lagging 52% behind SK Hynix. With all this financial success, why has the share price not experienced similar success? A Cyclical, Commodity Business With No New Story Micron operates in a highly competitive and cyclical subset of the Semiconductor industry with very little product differentiation. The commoditized memory/storage products make the company vulnerable to both pricing pressure, which usually tracks downward over time, […]
Yesterday was the first day of the Fourth Quarter of 2018, so it’s a good time to assess where markets are for the year. Nobody should change their portfolios radically based on recent market moves, and, to the extent that anybody does, the bias should be selling what has dropped and buying what has surged. But, from time to time, it can be useful to observe recent trends. The first thing to notice about market returns through the first three quarters of 2018 is that U.S. stocks are up again. The S&P 500 Index closed the Third Quarter up 10.58% for the year, including dividends. Mid-cap stocks were up too, though less dramatically. The Russell Midcap Index gained 7.45% for the year through the Third Quarter. Small-cap stocks have gained about as much as the S&P 500, with the Russell 2000 Index up 11.51% for the year. And the Russell Megacap 50 Index also has a similar gain for the year of 11.69%. Two Discrepancies If U.S. stocks are having a good year, international stocks aren’t. The MSCI EAFE Index, which tracks stocks from developed countries, lost 1.43% for the year through the end of the Third Quarter. The MSCI Emerging Markets Index (MSCI EM NR) has done ever worse, shedding 7.68% for the year through the end of the quarter. Much of those losses are attributable to the dollar’s surge against foreign currencies, especially those of emerging markets. When U.S investors buy foreign stocks or a foreign stock fund, […]
I’ve looked at oil from both sides now, from supply-demand and still somehow, the glut illusion I still recall, they really don’t know oil at all. Both Brent and West Texas Intermediate reached new highs in the oil “supercycle” achieving highs that we have not seen since OPEC started the oil production war Thanksgiving 2014. While the focus quite obviously has been on the supply side of the equation, you must look at both sides now. Watch demand and rising oil demand expectations. Sure, Iran sanctions are a big part of what’s going on with the supply side but the Trump trade deal with Mexico and Canada as well as some rock-solid manufacturing data in the US rocking the demand side. The ISM said its purchasing managers index fell to 59.8 in September from 61.3 in August, although a reading above 50 still indicates growth in the manufacturing sector but still just off a 14 year high, signaling better than expected demand growth for oil. For too long, many were focused only on supply side on oil and the perception that the oil supply would always remain high. Oil companies believing that oil prices would be lower, cut trillions of dollars in cap x cuts, reducing future oil supply anywhere from 8 to 10 million barrels a day of future output. We are already seeing the impact of those Cap X cuts because production continues to fail to keep pace with earlier pessimistic demand growth estimates. In fact, all three […]
What was looking like quite a bad morning for US equities when our alarms went off a few hours ago is looking a lot more manageable now as futures have rallied off their lows. In yesterday’s session, the big star of the day was oil and the Energy sector in general. Driven by a 2.8% rally in crude oil prices, the S&P 500 Energy sector jumped 1.5%. Checking out the charts for oil and the Energy sector show some positive trends. Crude oil prices are relatively quiet today, but yesterday’s rally took the front month future to a new 52-week high with a breakout above the summer highs. While not at a new high, the S&P 500 Energy sector looks to be on the right path after convincingly breaking its downtrend from the highs in the Spring. Also working in the sector’s favor is that along with the rally in crude oil, natural gas prices also rallied yesterday to their highest prices since January. Internals for the Energy sector also look positive.The chart below compares the sector’s price and cumulative A/D line. While prices aren’t yet at new highs, breadth has been strong and consistently trending higher for the last several weeks.
PepsiCo (PEP – Free Report) came out with quarterly earnings of $1.59 per share, beating the Zacks Consensus Estimate of $1.56 per share. This compares to earnings of $1.48 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of 1.92%. A quarter ago, it was expected that this food and beverage company would post earnings of $1.51 per share when it actually produced earnings of $1.61, delivering a surprise of 6.62%. Over the last four quarters, the company has surpassed consensus EPS estimates four times. PepsiCo, which belongs to the Zacks Beverages – Soft drinks industry, posted revenues of $16.49 billion for the quarter ended September 2018, surpassing the Zacks Consensus Estimate by 0.66%. This compares to year-ago revenues of $16.24 billion. The company has topped consensus revenue estimates three times over the last four quarters. The sustainability of the stock’s immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management’s commentary on the earnings call. PepsiCo shares have lost about 7.7% since the beginning of the year versus the S&P 500’s gain of 9.4%. What’s Next for PepsiCo? While PepsiCo has underperformed the market so far this year, the question that comes to investors’ minds is: what’s next for the stock? There are no easy answers to this key question, but one reliable measure that can help investors address this is the company’s earnings outlook. Not only does this include current consensus earnings expectations […]
We have to come to the reality that from 2019 onward, we are headed into a Pension Crisis that will be serious. Many are starting to yell about the debt crisis. They lump on private debt and yell its a bubble. What they miss entirely is the fact that we face more than a decade of crises that would have been avoidable, had governments been actually managers and central bank had not tried to keep using Keynesian Demand Side Economics that even Paul Volcker warned back in 1978 had failed. (Click on image to enlarge) This is by no means prophecies of doom and gloom. Unfortunately, they are prophecies not even of a pessimist, but only facts that are comprehensible simply using a pocket calculator and not even a computer. The Pension Crisis is the end of Socialism. Promises that were made which were never sustainable but were a scheme to win votes. Then the money needed to pay the pension required 8% interest annually. Then the central banks enter the game and mess everything up even more. Instead of DIRECTLY aiding the economy, they lower rates and HOPE that the banks will pass it along. They never did. The banks parked the money at the Excess Reserve Window that the Fed has still not closed. The cost of pensions is currently stifling Western society beyond belief. Europe itself is ahead of the curve and will crack before the United States. Europe already has between 30% to 40% of the population who have already retired or are about to […]