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Why Micron (MU) Investors Should Not Fear the Chinese Trade War
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Stocks were battling to shrug off their early losses through early afternoon trading Wednesday, with heightened concerns about an impending trade war between the U.S. and China still weighing heavily on the minds of investors around the world.
Trade war speculation quickly turned into a reality this week after President Donald Trump released a list of Chinese imports that his administration plans to hit with new tariffs. Sectors impacted by the proposed crackdown would include IT and communication technology, robotics, and aerospace—among others.
The Chinese responded quickly, releasing their own list of U.S. products to be targeted with 25% import tariffs on Wednesday. Regulators from the Asian behemoth did not announce when the tariffs would go into effect, but the list includes more than 100 U.S. goods and could impact up to $50 billion worth of American product.
Over the past few weeks, fears that the U.S. and China would initiate a tit-for-tat trade war helped usher in fresh volatility to global stock markets. Specifically, the selloff appeared ready to end the red-hot run of the technology sector, evidenced by the tech-heavy Nasdaq’s nearly 9.5% tumble from its latest highs.
Investors seemed particularly concerned about high-flying tech companies with significant levels of exposure to China. One name that frequently emerged was Micron Technology (MU - Free Report) , a popular memory-chip maker that had seen its stock price soar nearly 100% in the year ahead of this volatility’s emergence.
Micron generated about $20.3 billion worth of revenue in its most-recent fiscal year, and a little over 50% of that came from China. It made sense that investors were willing to take their profits and avoid the risk as trade tensions increased.
But Micron shares surged as much as 2% on Wednesday, suggesting that some of this hesitation was lifted after the release of the aforementioned tariff lists. And indeed, a careful examination of the goods that will be targeted by regulators from both countries indicates that Micron will likely remain relatively unscathed.
For one, China’s list of U.S. imports to target includes almost no tech products or equipment. The country is focusing almost exclusively on goods that affect Trump’s support base. This includes agricultural products, such as soybeans, corn, and meat; vehicles; and manufacturing supplies like chemicals and lubricants.
The list is likely political in nature and designed to create backlash against President Trump and the Republicans, especially with midterm elections looming. Luckily for Micron, its memory chips have not been mentioned yet. One thing to remember, however, is that Micron is based in Idaho—a heavily red state—and might eventually be targeted for the same political reasons.
On the other side of this equation is how new U.S. tariffs could affect Micron. The White House’s list of proposed Chinese goods to target includes a number of components used in the manufacture of semiconductors, and Micron does have manufacturing facilities in China.
However, Micron does not have an overwhelming dependency on its Chinese properties. In fact, out of the company’s $19.4 billion in net property, plant, and equipment, just $453 million of that is from China. What’s more, semiconductor supply chains are notoriously diverse, and tariffs can be avoided by making simple adjustments to the chain.
Finally, investors should consider that the market has likely already priced in the worst of anything Micron could feel from a trade war. The stock is trading at just 5x forward 12-month earnings and sports an “A” grade in the Value category of our Style Scores system.
Pair all of this with Micron’s improving earnings outlook and Zacks Rank #1 (Strong Buy) designation and it is clear to see why MU remains a solid option despite trade war rhetoric.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeneyon Twitter!
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
Why Micron (MU) Investors Should Not Fear the Chinese Trade War
Stocks were battling to shrug off their early losses through early afternoon trading Wednesday, with heightened concerns about an impending trade war between the U.S. and China still weighing heavily on the minds of investors around the world.
Trade war speculation quickly turned into a reality this week after President Donald Trump released a list of Chinese imports that his administration plans to hit with new tariffs. Sectors impacted by the proposed crackdown would include IT and communication technology, robotics, and aerospace—among others.
The Chinese responded quickly, releasing their own list of U.S. products to be targeted with 25% import tariffs on Wednesday. Regulators from the Asian behemoth did not announce when the tariffs would go into effect, but the list includes more than 100 U.S. goods and could impact up to $50 billion worth of American product.
Over the past few weeks, fears that the U.S. and China would initiate a tit-for-tat trade war helped usher in fresh volatility to global stock markets. Specifically, the selloff appeared ready to end the red-hot run of the technology sector, evidenced by the tech-heavy Nasdaq’s nearly 9.5% tumble from its latest highs.
Investors seemed particularly concerned about high-flying tech companies with significant levels of exposure to China. One name that frequently emerged was Micron Technology (MU - Free Report) , a popular memory-chip maker that had seen its stock price soar nearly 100% in the year ahead of this volatility’s emergence.
Micron generated about $20.3 billion worth of revenue in its most-recent fiscal year, and a little over 50% of that came from China. It made sense that investors were willing to take their profits and avoid the risk as trade tensions increased.
But Micron shares surged as much as 2% on Wednesday, suggesting that some of this hesitation was lifted after the release of the aforementioned tariff lists. And indeed, a careful examination of the goods that will be targeted by regulators from both countries indicates that Micron will likely remain relatively unscathed.
For one, China’s list of U.S. imports to target includes almost no tech products or equipment. The country is focusing almost exclusively on goods that affect Trump’s support base. This includes agricultural products, such as soybeans, corn, and meat; vehicles; and manufacturing supplies like chemicals and lubricants.
The list is likely political in nature and designed to create backlash against President Trump and the Republicans, especially with midterm elections looming. Luckily for Micron, its memory chips have not been mentioned yet. One thing to remember, however, is that Micron is based in Idaho—a heavily red state—and might eventually be targeted for the same political reasons.
On the other side of this equation is how new U.S. tariffs could affect Micron. The White House’s list of proposed Chinese goods to target includes a number of components used in the manufacture of semiconductors, and Micron does have manufacturing facilities in China.
However, Micron does not have an overwhelming dependency on its Chinese properties. In fact, out of the company’s $19.4 billion in net property, plant, and equipment, just $453 million of that is from China. What’s more, semiconductor supply chains are notoriously diverse, and tariffs can be avoided by making simple adjustments to the chain.
Finally, investors should consider that the market has likely already priced in the worst of anything Micron could feel from a trade war. The stock is trading at just 5x forward 12-month earnings and sports an “A” grade in the Value category of our Style Scores system.
Pair all of this with Micron’s improving earnings outlook and Zacks Rank #1 (Strong Buy) designation and it is clear to see why MU remains a solid option despite trade war rhetoric.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>