Micron: 25 Growth Stocks For Higher (NASDAQ: MU)

To the satisfaction of many prognosticators, “pandemic darling” stocks have now fallen by more than 30%, 50%and even 70%. However, it is worth noting that some of them actually have wonderful businesses and now trade in more compelling valuation multiples-even after considering the risks created by the Fed’s aggressive interest rate hike (to fight inflation) that could propel us into recession and certainly guarantee discount valuation multiples to be assigned to these businesses are still on track to achieve significantly higher profits in the future. In this report, we feature 25 examples, including a special focus on Micron Technology (NASDAQ: MU).

Macroeconomic Context:

To be quick to review, we moved from very good monetary and monetary policy (e.g. near zero interest rates, massive bond purchases, multiple economic stimulus programs) to a noticeably hawkish stance that resistant to inflation (e.g. fed balance sheet) in less than a year. This means that stocks that are likely to benefit most from low interest rates (e.g. high -growth stocks with small current earnings but high “expected” future earnings) have disappeared from to the beloved to the hated in less than a year.

And about this face is magnified by the fact that many of these high growth darlings are also naturally far -flung businesses, which are now less “trendy” as investors think (perhaps mistakenly) done the pandemic (anecdotally, I have covid as I type). And as the short -term market narrative (and investor sentiment) has shifted, the selloff for high -growth stocks has become intense.

The two macroeconomic takeaways here are: (1) The best economists in the world are usually only right about half the time (i.e., it’s easier to choose good long -term businesses than to predict the direction of the overall economy), and (2) the some babies are now discarded using water baths because short-term narratives have gained a vice grip on the minds of many investors (i.e., the market is a short-term voting machine (especially on Twitter and Reddit, etc.), but a weighing machine in the long run). For example, Micron.

Micron Thesis:

Micron is an impressive growth stock that sold hard in the recent fed-induced growth-stock selloff (it was approximately 30% lower than its 52-week high). And despite the sell-off, the business continues to post impressive numbers, including revenue growth, high margins, a compelling appreciation, and an impressive overall addressable market opportunity.

Micron Overview:

In case you didn’t know, Micron designs and manufactures memory storage solutions that are used in a growing host of devices such as PCs, mobile, automotive, data centers (the cloud), Artificial Intelligence and the general “Internet of Things” (IoT). More specifically about 73% of the company’s revenue comes from DRAM (dynamic random-access memory), and the rest comes from NAND. DRAM provides data storage and retrieval while a device is turned on, and NAND is memory that retains its content when the power is turned off.

Micron is the third largest memory/storage provider in the world behind Samsung and SK Hynix, it has over 40,000 employees (located worldwide) and is headquartered in Boise, Idaho.

Micron Growth Opportunity:

The overall met market opportunity for Micron products is large and expanding. For starters, here’s a look at the market size for memory and end -to -end storage needs. Not only is it divergent (and dramatically expanded from previous years when some investors feared that Micron’s chances would decrease with the decline of traditional desktop PCs), but it is growing (as you can see in compound annual growth rates (CAGR) for both DRAM and NAND solutions).

(Source: Investor day presentation)

And for a little more insight, Micron’s revenues are expected to grow by 21.5% this year and 20.5% next year (according to the table later in this report), which is higher than the average growth rate of stock of the S&P 500. NAND and DRAM are expected to grow faster than the general semiconductor industry. In fact, the company estimates that market opportunity will more than double over the next decade (as you can see in the graphic below, taken from the company’s investor day presentation, delivered last week).

Micron Financial Health:

Micron continues to work from a position of financial strength. For example, the company has significantly reduced its debt levels in recent years (see chart below) and maintains a healthy investment grade credit rating (in fact, it was recently upgraded by Fitch).

Also important, Micron continues to maintain a healthy amount of money, while it continues to spend on research and development (which is crucial for future growth).

Micron Appreciation:

For a high-growth business, with extremely impressive margins (45.8% gross and 33.5% operating), Micron trades at very low (attractive) valuation multiples. For example, it currently trades with only about 2.5 times sales and 8.6 times revenue. You can see how favorable these numbers are compared to the other top growth stocks included in the table later in this presentation, and against the overall S&P 500 (which is currently trading at approximately 19.5 times earnings). . And here’s a look at some of the multiples of Micron’s appreciation versus the company’s own history.

Shares are also cheap by its own historical standards, especially considering revenue growth is particularly high and the overall addressable market is very large and continues to expand.

Micron Risks:

Aside from recent random technology and sales growth, there are several reasons (risks) why Micron trades in very low (compelling) valuation multiples (compared to its very strong business). For starters, Micron products are largely considered commodities. There is no particular economic moat per se, and new competitors are constantly trying to go online and compete. Additionally, Samsung and SK Hynix are formidable innovators that could quickly put Micron behind the curve in terms of technology and cost.

Another risk is that the business can be very cyclical. In the past, extended periods of industrial oversupply have created extreme stress on operations. However, according to Micron, the industry’s “supply discipline” and the “slowdown of Moore’s law” have reduced some of this risk because the company’s strategy is to work toward “growing supply bit according to demand.”

Third, many investors still view Micron as providing old school technology (NAND and DRAM) that they believe is dying out on desktop PCs. This may have been a valid concern a decade ago, but the market doesn’t seem to fully recognize the dramatically growing use of DRAM and NAND (it’s not just for desktop PCs today). Just because Micron chips aren’t as cut as Nvidia (NVDA) and AMD (AMD) doesn’t mean the business will die; opposite, as shown by growth rates and market opportunities.

Micron Investors

Despite the fact that many investors are attracted to Micron for its high growth and huge market opportunities, the billionaire value investor, Seth Klarman, is also a major shareholder. Klarman is the founder/portfolio manager of the Baupost Group, a firm known for its success in buying unpopular assets while they are undervalued. And according to the company’s latest 13F, Micron is their 13th largest position.

(Source: Dataroma, Baupost Group), (LBTYK) (QRVO) (INTC) (VSAT) (GOOG) (LSXMK) (VRTV) (FISV) (WTW) (SSNC) (LSXMA) (DBX))

25 More Higher Growth Stocks:

Micron is a small anomaly on our list because its valuation is very low (compelling) compared to business growth, high margins and overall addressable market (for the reasons we explained above). However, many more impressive growth businesses have sold hard recently because the fed has decided (for now) to fight inflation at any cost to the economy (recession anyone?).

The following table includes 25 more growth stocks that have recently sold heavily.

To be included in the table, businesses are required to have at least 15% expected revenue growth (this year and next) as well as a positive operating margin. There are many more “popular” stocks with higher expected earnings growth rates, but our list was not made because their operating margins (typically operating income divided by earnings) are relatively negative. Here are some examples (j-curve or not):

Investment Objectives and Time Horizon

Disagreements about investment opportunities often result in different investment objectives and time horizons. For example, If you have retired and are likely to lose sleep due to extreme investment volatility, it is probably unreasonable to load investments from the table outlined in red above. But if you are a 31 year old with a high-paying job, a long investment period and a carefully diversified portfolio, you may be very well served to choose some long-term high-growth stocks that will current down large.

Conclusion:

The Fed’s increasingly draconian posture in responding to inflation could cause the economy to recession. It is almost certainly driven that stock prices are looking forward significantly lower. Depending on your own personal goals and time horizon, you may want to boldly consider owning a portion from our lists above (there are some awesome business deals in the eye. catching lower prices), or you may just be too disgusted with the extremely volatile risk. -reward potential they offer. At the end of the day, it’s your money, and you have to do what’s right for you.

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