Micron Technologies: Be Thankful For The Dip – Seeking Alpha

Micron Technologies (NASDAQ:MU) stock has been on a rampage this year, outperforming all major market indices by far. Shares have more than doubled in 2016 and are up over 30 percent this year. The question now is whether this run still has legs or not to keep going.

In my opinion, as long as Micron keeps posting spectacular earnings and growth, there is no reason to question the run. However, it seems like the market sentiment is quickly shifting to a bearish stance on tech stocks. People are trying to hedge their positions and reduce their exposure in the tech sector due to fears about valuations. A lot of people think that there is a bubble currently with tech stocks. Now, while it is true valuations are a bit stretched, there is no logical reason to sell a fundamentally solid company backed by strong earnings just because of the sector it is in.

On Thursday, Micron posted another quarter which outperformed analyst expectations across the board. However, shares were down over 5 percent the next day. I believe this is due to hedge funds and other institutions locking in gains and limiting their exposure to tech stocks - the selling pressure probably drove share prices down. This creates the perfect opportunity for retail investors, though, who have more freedom when investing compared to institutions to pick up some shares in a fantastic company.

No matter how you look at it, this quarter did blow out analyst expectations in every conceivable way. Micron reported an EPS of $1.62 versus analyst expectations of $1.51 and a quarterly revenue of $5.57 billion versus analyst expectations of $5.41 billion. I think it is important for everyone to realize that revenue is 20 percent higher compared to the previous quarter and 92 percent higher year over year. Strong cash flows this quarter also allowed the company to strengthen its balance sheet and pay down $1 billion in debt.

This is the 8th straight quarter where Micron has been able to exceed analyst expectations, and there is no sign that the favorable earnings trend will stop anytime soon either. All its business units posted record-breaking revenues this quarter, and revenue from cloud customers alone was nearly 4 times higher year over year. Micron also projects that strong industry demand will continue to remain healthy and persist into 2018, and the company's portfolio of innovative and high-value products will be able to benefit very much from increasing demand. So far, we can see that it is taking full advantage of this broad industry trend and will not suddenly stop doing so anytime soon.

MU Price data by YCharts

Unfortunately, the price action after this earnings report was negative, and Micron shares traded down over 5 percent the following day. There is most definitely a rational reason for this - it can all be explained by looking at the current market state. People are scared and are trying to protect their gains in a bull market that has lasted over 8 years, and tech stocks have gained the most in these 8 years and are being sold off. Nasdaq has fallen 2 percent over the past month and is taking the brunt of criticism by many market bears. People think valuations are stretched and that the run has gone on for too long.

This type of thinking is often what causes people to miss out on investing in fantastic companies - the bottom line is no one has a crystal ball to predict when a sudden stock market crash will occur. As long as you diversify your holdings and adjust your portfolio positions on a regular basis, you will be fine. You cannot time the market and predict when it will fall. Retail investors who sold Micron after its earnings report will end up buying back at a higher price.

However, it makes sense why you would sell if you were a hedge fund or any other money managing institution. Hedge funds and other institutions like mutual funds have investors they need to appease regularly. They manage a lot of money and need to book profits. A lot of the selling we are seeing in the tech sector in general is due to institutions locking in profits. Most hedge funds and mutual funds also have to show all of their positions to investors at the end of the quarter, and with all of the negative sentiment towards tech, it makes sense why some institutions would reduce/sell their positions to make it seem like they are not too exposed to the tech sector. With Micron stock performing so well in the past few months, people had to take profits eventually. Turns out, Friday was that day.

A lot of analysts also upgraded Micron stock following their earnings report. Deutsche Bank raised their price target on Micron from $35 to $37 while maintaining their rating, and Goldman Sachs upgraded Micron's price target from $30 to $33. Stifel Nicolaus maintained their current buy rating and increased their price target by 50 percent, from $40 all the way up to $60 a share!

The bottom line is that it makes no logical sense for everyday retail investors to sell right now. The company's earnings were stellar and exceeded analyst expectations. Real investors do not buy/sell stocks based on the price action of stock, but rather on the fundamentals and earnings of a company. Micron Technologies has solid fundamentals backed by fantastic earnings numbers. It makes no sense for a company to suddenly be 5 percent less valuable after reporting earnings which exceeded expectations. Some people are saying it's because of Micron's valuation, though it only takes a little logical thinking to completely debunk this idea. When you value a company, you do not just look at the present cash flows and earnings - you look into the future, you look for growth. Growth for this quarter exceeded expectations, reaffirming the positive trajectory the company is going in, and the recent analyst upgrades following the quarterly results support this idea. We give Micron Technology a Buy rating and a conservative $36 price target.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in MU over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Micron Technologies: Be Thankful For The Dip - Seeking Alpha