Persistent supply chain problems and shortages in memory chips are likely to continue, according to Real Money Columnist Stephen 'Sarge' Guilfoyle.
That suggests shares of one of the biggest makers of the chips could be set for gains, according to Guilfoyle.
Unlike central processor or graphics chips, memory chips tend to be seen more as a commodity, and trade accordingly under normal circumstances.
Micron Technology (MU) - recently reported its latest quarterly financial results which included better-than-expected forward revenue and earnings guidance.
“MU stock trades at 8 times forward-looking earnings, and I do believe that demand for what Micron does will outpace supply and/or capacity for some time,” . "That said, Micron seems to always trade at single-digit multiples so it is not necessarily "cheap" here, but the stock is certainly not (opinion) expensive."
Guilfoyle, who is long Micron as well as other semiconductor stocks, argues that products from both memory and semiconductor companies will be sought after as the pandemic has slowed down supply and shipments.
The company’s stock appears to always trade at single-digit multiples, but the stock is not “necessarily” cheap nor expensive, Guilfoyle wrote. He has a price target of $115 for Micron Technology.
Out of six sell-side analysts who have written an analysis on Micron since its earnings, five of them gave “buy" of "buy equivalent" ratings and one issued an "equal weight," which Guilfoyle considers to be "hold equivalent."
“While many of the notes mentioned things such as improving prospects for the data center, PC and automotive businesses, a common theme also seemed to be Micron's pricing power,” he wrote.
The company’s cash level, current assets and current liabilities give it a ratio of a healthy 3.11.
“This balance sheet is as clean as a whistle and gets high marks on the Sarge test,” Guilfoyle wrote.