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Which Stock Is Better: Micron or Applied Materials?
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With earnings season right around the corner, everyone will be waiting on the results and speculating on possible outcomes. Macro issues will retreat to the back of our consciousness as Wall Street warms up with all the news and views that constitute the typical earnings season.
But this is a good time to take a look at some of the familiar names to see what they’ve been up to and where they are heading.
Micron made strong gains in 2016 mainly because supply of DRAM and NAND memory chips was outstripped by demand for those devices, resulting in higher prices. So the share prices are essentially hanging on the expectation that this pricing strength will continue. In 2017, additional chip supply will be entering the market (especially 3D NAND, Intel’s (INTC - Free Report) 3D Xpoint, etc), so supply will increase. But new product launches will be consuming more memory than they did last year. So memory prices may not weaken.
It’s also worth keeping in mind that companies have been reducing their dependence on spot prices over the years although contract prices don’t deviate too much from spot prices at the time the contract is signed meaning that pricing fluctuations are largely hedged today.
As far as industry bit growth is concerned, Micron’s own expectations are as follows:
2017 DRAM Disk supply growth is expected to be 15-20% based on the assumption that natural supply growth will continue but suppliers will be more focused on process node migrations to enable cost reductions than on capacity adds. Micron’s long-term bit demand growth forecast is approximately 20-25%.
NAND bit growth is expected to be in the high 30% to low 40% range, which is in line with 2016. 3D conversions (75% of Micron’s NAND will be 3D by year-end) offset by strong demand for storage and mobile solutions will lead to balanced supply/demand dynamics in 2017. Micron’s long-term bit demand growth forecast is 40-45%.
So this should be a good year for Micron. With a PEG ratio of just 0.74 and a Zacks Rank #1 (Strong Buy), this is a stock worth buying.
Other details:
Revenue: Expected growth of 16.2% in the May quarter and 2.3% in the August quarter. Beat revenue estimates in 3 of the last 5 quarters.
EPS: Expected growth of 77.9% in the May quarter and -1.5% in the August quarter. Topped earnings estimates in 4 of the last 5 quarters.
Balance Sheet: This is not yet a concern but something to keep an eye on: from 1Q15 to date, the debt to total capital ratio has gone from 31.8% to 45.1% while the current ratio has moved from 2.19 to 1.91. Return on Assets is down from 18.6% to 3.7%.
Investment Style: According to the Zacks Style Score System, Micron has a Value Score of A, Growth Score of B and Momentum Score of A netting a VGM Score of A. This means that the stock is suitable for value, growth or momentum traders, as well as the layman with limited knowledge of these intricacies.
This is a very good time to be semiconductor equipment company, especially a well-managed one like Applied Materials. There are multiple drivers in the market right now, both with respect to new technologies (shrinking chip geometries, 3D NAND) coming online and the decision of the Chinese government to reduce is semiconductor imports by building domestic capabilities.
3D involves etch and deposition-intensive layer stacking and better ion implantation and inspection, all of which are driving demand for better equipment.
Since Chinese companies are yet to produce the equipment that can make the government’s goal a reality, AMAT and Lam Research (LRCX - Free Report) , the leading players, may be expected to become major suppliers of semiconductor equipment at least over the next 3-4 years.
We should also keep in mind that as computing moves increasingly from PCs to mobile devices running on Alphabet (GOOGL - Free Report) , Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) software, which have shorter life cycles, equipment replenishment cycles have shortened. With the advent of concepts like AI, IoT, self-driving and other automotive technologies, and AR/VR, there now appear to be several secular drivers that will drive equipment demand for years to come.
That said, good growth is worth investing in only when the valuation isn’t too high, and its heartening to see that this Zacks Rank #1 company has a PEG ratio of 0.94.
Other details:
Revenue: Expected decline of 22.4% in the April quarter and 7.2% in the July quarter. Beat revenue estimates in 3 of the last 5 quarters.
EPS: Expected growth of 13.4% in the April quarter and decline of 13.2% in the July quarter. Topped estimates in all of the last 5 quarters.
Balance Sheet: the debt to total capital ratio remains very manageable although it has increased from 19.4% to 28.9% from the first quarter of 2015 to date. The current ratio is only slightly lower during the same time frame from 2.75 to 2.39 while Return on Assets has jumped from 10.6% to 16.8%.
Investment Style: According to the Zacks Style Score System, Applied Materials has a Value Score of C, Growth Score of B and Momentum Score of C netting a VGM Score of B. This stock is therefore most suitable for growth investors who have the stomach to invest today and wait for greater returns in the future.
Conclusion
There are several positives to both stocks but since investment decisions depend on a lot of other factors including risk appetite and available funds. So take a breath and grab your pick.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more.
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Which Stock Is Better: Micron or Applied Materials?
With earnings season right around the corner, everyone will be waiting on the results and speculating on possible outcomes. Macro issues will retreat to the back of our consciousness as Wall Street warms up with all the news and views that constitute the typical earnings season.
But this is a good time to take a look at some of the familiar names to see what they’ve been up to and where they are heading.
First Up Is Micron (MU - Free Report)
Micron made strong gains in 2016 mainly because supply of DRAM and NAND memory chips was outstripped by demand for those devices, resulting in higher prices. So the share prices are essentially hanging on the expectation that this pricing strength will continue. In 2017, additional chip supply will be entering the market (especially 3D NAND, Intel’s (INTC - Free Report) 3D Xpoint, etc), so supply will increase. But new product launches will be consuming more memory than they did last year. So memory prices may not weaken.
It’s also worth keeping in mind that companies have been reducing their dependence on spot prices over the years although contract prices don’t deviate too much from spot prices at the time the contract is signed meaning that pricing fluctuations are largely hedged today.
As far as industry bit growth is concerned, Micron’s own expectations are as follows:
2017 DRAM Disk supply growth is expected to be 15-20% based on the assumption that natural supply growth will continue but suppliers will be more focused on process node migrations to enable cost reductions than on capacity adds. Micron’s long-term bit demand growth forecast is approximately 20-25%.
NAND bit growth is expected to be in the high 30% to low 40% range, which is in line with 2016. 3D conversions (75% of Micron’s NAND will be 3D by year-end) offset by strong demand for storage and mobile solutions will lead to balanced supply/demand dynamics in 2017. Micron’s long-term bit demand growth forecast is 40-45%.
So this should be a good year for Micron. With a PEG ratio of just 0.74 and a Zacks Rank #1 (Strong Buy), this is a stock worth buying.
Other details:
Revenue: Expected growth of 16.2% in the May quarter and 2.3% in the August quarter. Beat revenue estimates in 3 of the last 5 quarters.
EPS: Expected growth of 77.9% in the May quarter and -1.5% in the August quarter. Topped earnings estimates in 4 of the last 5 quarters.
Balance Sheet: This is not yet a concern but something to keep an eye on: from 1Q15 to date, the debt to total capital ratio has gone from 31.8% to 45.1% while the current ratio has moved from 2.19 to 1.91. Return on Assets is down from 18.6% to 3.7%.
Investment Style: According to the Zacks Style Score System, Micron has a Value Score of A, Growth Score of B and Momentum Score of A netting a VGM Score of A. This means that the stock is suitable for value, growth or momentum traders, as well as the layman with limited knowledge of these intricacies.
Next, Applied Materials (AMAT - Free Report)
This is a very good time to be semiconductor equipment company, especially a well-managed one like Applied Materials. There are multiple drivers in the market right now, both with respect to new technologies (shrinking chip geometries, 3D NAND) coming online and the decision of the Chinese government to reduce is semiconductor imports by building domestic capabilities.
3D involves etch and deposition-intensive layer stacking and better ion implantation and inspection, all of which are driving demand for better equipment.
Since Chinese companies are yet to produce the equipment that can make the government’s goal a reality, AMAT and Lam Research (LRCX - Free Report) , the leading players, may be expected to become major suppliers of semiconductor equipment at least over the next 3-4 years.
We should also keep in mind that as computing moves increasingly from PCs to mobile devices running on Alphabet (GOOGL - Free Report) , Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) software, which have shorter life cycles, equipment replenishment cycles have shortened. With the advent of concepts like AI, IoT, self-driving and other automotive technologies, and AR/VR, there now appear to be several secular drivers that will drive equipment demand for years to come.
That said, good growth is worth investing in only when the valuation isn’t too high, and its heartening to see that this Zacks Rank #1 company has a PEG ratio of 0.94.
Other details:
Revenue: Expected decline of 22.4% in the April quarter and 7.2% in the July quarter. Beat revenue estimates in 3 of the last 5 quarters.
EPS: Expected growth of 13.4% in the April quarter and decline of 13.2% in the July quarter. Topped estimates in all of the last 5 quarters.
Balance Sheet: the debt to total capital ratio remains very manageable although it has increased from 19.4% to 28.9% from the first quarter of 2015 to date. The current ratio is only slightly lower during the same time frame from 2.75 to 2.39 while Return on Assets has jumped from 10.6% to 16.8%.
Investment Style: According to the Zacks Style Score System, Applied Materials has a Value Score of C, Growth Score of B and Momentum Score of C netting a VGM Score of B. This stock is therefore most suitable for growth investors who have the stomach to invest today and wait for greater returns in the future.
Conclusion
There are several positives to both stocks but since investment decisions depend on a lot of other factors including risk appetite and available funds. So take a breath and grab your pick.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more.
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