Micron (MU) Patience Rewarded AGAIN...Now We Up the Bet

So two days before my 6-0 birthday I am feeling awfully good about how we handled the mini-tech wreck. Our call for patience and to let the market and technical support levels tell us what to do has been spot on...and our patience in the Micron story/SHOP calls are paying off BIG and NVDA calls are again buyable!

Action to Take: We will take a $5k of profit from each Micron position IF we retrace and break $42.50 with a market sell stop order--and buy 50% position with January 5 2018 $50 calls at .75 or lower. Dec 19th is E-DAY earnings day for MU and the Street is at $2.19 of earnings...all the data I get says $2.50 earnings which is a $10 2019 earnings number!

Micron is earning at the rate of $10 per year.
Consensus estimates for the first fiscal quarter, ending November, are $2.19.
My number is Micron will report $2.50 or higher on December 19th due to higher DRAM/NAND prices and $4 billion reduction in their debt

DRAM and NAND supply and demand. There was a flood of sell side research on November 30. I've gone through over 100 pages of reports from Bernstein, Citi, Goldman Sachs, UBS and Deutsche Bank. Two charts from the UBS gloomy report, entitled "Is the Supernova starting to fade?", caught my eye.

Here are their helpful estimates, in bits and bytes, of the supply and demand for the two main memory types:

Extracted from Figure 14, DRAM Millions of 1Gb:

20152016201720182019

Supply59,38776,81593,861113,924142,023

Demand57,83975,70095,643114,477137,068

Sufficiency2.2%0.1%-2.7%0.0%3.1%

Source: UBS, 11/30/2017

Extracted from Figure 17, NAND Millions of 1 GB:

20152016201720182019

Supply96,176144,963184,967280,216408,339

Demand93,654136,977191,358271,071392,616

Sufficiency2.7%2.5%-1.1%2.9%3.4%

Source: UBS, 11/30/2017

A couple of observations on these tables:

Neither of these markets look like they are falling apart in 2018.
I like markets where demand is almost tripling (DRAM) and more than quadrupling (NAND) in five years.
The balanced DRAM market in 2018 should mean that pricing remains relatively level on this 2/3 portion of Micron's business.
With a level DRAM price and Micron's acceleration into the 1 x, y, and z nodes profitability of this segment should increase. I don't see a price slip till 2019.
The 2018 & 2019 small over supply in NAND will mean continuing soft pricing in that 1/3 of Micron's business. But the company's leadership in 3DNAND and apparent great yields should mean stable to increasing profitability in that segment as well.

Here are two charts on supply and demand from Citibank, 11/30/2017. Note that these are slightly different projections, different units in the case of NAND, quarterly vs. annual data, and a bit more bullish on the "sufficiency" I think:

Susquehanna (which is the best on the street besides ME on Micron) raised their price target on the stock to $60 from $54. My fave analyst Medhi Hosseini, wrote that "Micron's narrative is changing from a company with single-digit earnings power to one that could potentially do double digits ($10+) by the turn of the decade."

Hosseini increased his earnings estimates due to better DRAM price trends and the company's debt restructuring. Micron shares have soared 97% so far in 2017, compared with an 18% gain for the S&P 500 SPX, +0.42%

Here is the nightly compilation of the average DRAM chip spot price reported on DRAMeXchange vs. the Micron stock price:

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Transformity Investor

Micron (MU) Patience Rewarded AGAIN...Now We Up the Bet

Dear << Test First Name >>,

So two days before my 6-0 birthday I am feeling awfully good about how we handled the mini-tech wreck. Our call for patience and to let the market and technical support levels tell us what to do has been spot on...and our patience in the Micron story/SHOP calls are paying off BIG and NVDA calls are again buyable!

Action to Take: We will take a $5k of profit from each Micron position IF we retrace and break $42.50 with a market sell stop order--and buy 50% position with January 5 2018 $50 calls at .75 or lower. Dec 19th is E-DAY earnings day for MU and the Street is at $2.19 of earnings...all the data I get says $2.50 earnings which is a $10 2019 earnings number!

Micron is earning at the rate of $10 per year.
Consensus estimates for the first fiscal quarter, ending November, are $2.19.
My number is Micron will report $2.50 or higher on December 19th due to higher DRAM/NAND prices and $4 billion reduction in their debt

DRAM and NAND supply and demand. There was a flood of sell side research on November 30. I've gone through over 100 pages of reports from Bernstein, Citi, Goldman Sachs, UBS and Deutsche Bank. Two charts from the UBS gloomy report, entitled "Is the Supernova starting to fade?", caught my eye.

Here are their helpful estimates, in bits and bytes, of the supply and demand for the two main memory types:

Extracted from Figure 14, DRAM Millions of 1Gb:

20152016201720182019

Supply59,38776,81593,861113,924142,023

Demand57,83975,70095,643114,477137,068

Sufficiency2.2%0.1%-2.7%0.0%3.1%

Source: UBS, 11/30/2017

Extracted from Figure 17, NAND Millions of 1 GB:

20152016201720182019

Supply96,176144,963184,967280,216408,339

Demand93,654136,977191,358271,071392,616

Sufficiency2.7%2.5%-1.1%2.9%3.4%

Source: UBS, 11/30/2017

A couple of observations on these tables:

Neither of these markets look like they are falling apart in 2018.
I like markets where demand is almost tripling (DRAM) and more than quadrupling (NAND) in five years.
The balanced DRAM market in 2018 should mean that pricing remains relatively level on this 2/3 portion of Micron's business.
With a level DRAM price and Micron's acceleration into the 1 x, y, and z nodes profitability of this segment should increase. I don't see a price slip till 2019.
The 2018 & 2019 small over supply in NAND will mean continuing soft pricing in that 1/3 of Micron's business. But the company's leadership in 3DNAND and apparent great yields should mean stable to increasing profitability in that segment as well.

Here are two charts on supply and demand from Citibank, 11/30/2017. Note that these are slightly different projections, different units in the case of NAND, quarterly vs. annual data, and a bit more bullish on the "sufficiency" I think:

Susquehanna (which is the best on the street besides ME on Micron) raised their price target on the stock to $60 from $54. My fave analyst Medhi Hosseini, wrote that "Micron's narrative is changing from a company with single-digit earnings power to one that could potentially do double digits ($10+) by the turn of the decade."

Hosseini increased his earnings estimates due to better DRAM price trends and the company's debt restructuring. Micron shares have soared 97% so far in 2017, compared with an 18% gain for the S&P 500 SPX, +0.42%

Here is the nightly compilation of the average DRAM chip spot price reported on DRAMeXchange vs. the Micron stock price:

And here is the average NAND chip spot price vs. the Micron stock price:

And finally, here is the DRAMeXchange DXI index vs. the Micron stock price:

OK, what about earnings? Here is a table of 1Q and FY2018 earnings estimates from a few of the better sell side analysts:

1Q NovemberFY2018

Deutsche Bank$2.20$8.08

Bernstein$2.37$8.13

Goldman Sachs$2.22$8.45

Morgan Stanley $8.72

Transformity Research Estimate: $2.50
Here is the Micron Chart--we recovered above the 50-day average JUST LIKE we hoped it would.This sell-off looks like a mirror image of the August sell-off!

BUY MORL Under $17.50 Our old friend MORL the 2x leveraged mortgageREIT ETF. MREITS are C-corporations not pass-throughs and have paid 35% C-Corp taxes on their retained earnings. They will get a bump in distributable cash and that means a bump is MORL's 21% yield. Our forecast is $18.50-$20 target and 22% average yield in 2018 or >30% total return.

Personally if you don't use the income I'd reinvest the dividends in new shares; yes the short term rates are going up but the Mortgage REIT industry has that risk hedged out (i.e., they have long term fixed short term borrowing costs).

NVDA--ADD THE OTHER 50% to Your Position Here January $215 Call Options

NVDA momentum has just turned positive...so time to add to our January $215 calls under $2. We need to see NVDA back over $200 in the next 3-4 trading days...THAT will get the black box algos buying the new momentum!
https://finance.yahoo.com/quote/NVDA180119C00215000?p=NVDA180119C00215000

Cheers! Toby