Ticker Reports for September 18th
Capitalize on Micron's 24% Drop—Wall Street Eyes Major Upside
The stock market has had to watch some of its previous darlings in the technology sector underperform in the past couple of weeks; investors can find the industry’s latest victim in shares of Micron Technology Inc. (NASDAQ: MU) as the stock has traded down from its recent high made in August 2024. A 24.3% decline from that level would mean the stock trades at roughly 56% of its 52-week high.
Wall Street defines a bear market as a 20% or more sell-off from recent highs. So, Micron stock now fits the description of being in a steep bear market, something investors could take advantage of in the right environment. While Micron might be in the middle of a bear market, the rest of the semiconductor industry is not, as the VanEck Semiconductor ETF (NASDAQ: SMH) is still relatively intact by trading at 83% of its 52-week high.
Of course, markets had a reason to sell this stock. While some of these causes might be true and strong enough to keep the stock at this level for a while, there are also potential signs of a recovery brewing for this company and others in the semiconductor industry. First, investors should check in to see how Wall Street views the company today.
Micron Stock: Wall Street’s Latest Roundup and Analyst Insights
When stocks start showing markets a bit of bearish price action, analysts tend to avoid these names to protect their reputations and careers. The fact that analysts at Citigroup decided to reiterate their Buy rating for Micron stock speaks volumes about the sentiment despite the bearish price action.
However, there are also opposing views from those at BNP Paribas, who recently cut Micron's stock price target to less than half their previous view. Going from a $140 target down to just $67 would call for as much as a 24% downside from where the stock trades today.
Quoting their bear case, these analysts expect the entire industry to come into a state of oversupply, which will affect margins across the board. Recently, NVIDIA Co. (NASDAQ: NVDA) CEO Jensen Huang said there would be "tons and tons" of supply for their new chips but didn't mention much about the demand side.
Despite what BNP Paribas warned, Citigroup's valuation is set at a price target of $150 a share for Micron stock as of September 2024. To confirm these analysts' latest valuations, Micron stock would need to rally by as much as 68.5% from where it trades today, and that's where investors can begin to paint a potentially bullish picture.
Other Wall Street players decided to take a chance on Micron stock's potential recovery in the coming quarters, as up to $9 billion of institutional capital made its way into the stock over the past 12 months alone. The latest round of buying came from those at SS&H Financial Advisors, boosting their positions by 3.2% as of September 2024, netting their investment at $2.8 million today.
Other major Wall Street behemoths like the Vanguard Group and BlackRock have also increased their holdings in Micron stock by 1% and 2%, respectively, bringing their net positions to $13 billion and $12 billion each. Given these additions during the past quarter, investors should consider this willingness to buy despite a recent sell-off.
Last, investors can check where Wall Street's earnings per share (EPS) forecasts are for Micron stock. The company netted $0.62 in earnings, a figure analysts expect to jump higher by 75.8% in the next 12 months to reach $1.09 EPS.
Micron Stock's Discount Offers More Value Than Just the Price
Investors can look beyond the stock’s price to determine where the steep discount in Micron Technologies comes from. On a price-to-book (P/B) basis, this company is valued at 2.4x today, while peers like NVIDIA trade at a much higher 50.4x multiple today.
It seems that some in the industry are starting to feel the pain of building inventory ahead of time, as Intel Co. (NASDAQ: INTC) has also currently traded down to 42% of its 52-week high. Knowing that Micron’s issues are not trapped in a vacuum but rather part of a larger industry-wide problem, investors can start to consider a potential dip buy.
Micron’s financials could be the ultimate guide for investors to confirm a bull case, particularly regarding inventory and potential cash flow issues. The latest quarterly results show that Micron’s operating cash flows rose from $1.3 billion last year to $5.1 billion this year, mainly driven by inventory values.
Last year, Micron expanded its inventories by roughly $3.6 billion, while this year, it was only expanded by $125 million. This means they are getting ahead of the curve and tightening their supply chain before the industry takes a potential downturn.
Be that as it may, the worst might be behind Micron stock, as management seems to be reacting in all the right ways. Any further volatility in the industry might already be priced into Micron stock, making it a somewhat safer pick for tomorrow.
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Stocks to Take Advantage of Rising Gold Prices
Investors have flocked to safe haven precious metals including gold and silver in recent months, helping to drive the price of each of these metals up by about a third in the last year. Gold in particular continues to hit new all-time highs and trades close to $2,600 per ounce as of mid-September.
Emerging market central banks have stocked up on gold while the U.S. dollar has weakened and investors around the world build up expectations that the Federal Reserve will lower interest rates. All of these factors may have contributed to the metal's surging price.
For those optimistic that gold will continue to reach new highs in the near-term, there are multiple ways to gain both direct and indirect exposure to the precious metal. Besides holding gold bullion, investors can also target a gold or precious metals ETF like the SPDR Gold Shares ETF (NYSE: GOLD), which is also up by more than 32% in the last year. Another option is to target gold stocks—companies that are responsible for the exploration, mining, and production of gold.
FCX: Diversified Holdings, Strong Financial Foundation
Vertically integrated mining outfit Freeport-McMoRan Inc. (NYSE: FCX) produces gold, copper, and molybdenum. Because its operations extend into smelting and refining, Freeport-McMoRan can conduct business independently from other mining industry partners. It also has a geographically diversified portfolio of mining properties across North and South America and elsewhere in the world, providing a way of mitigating risk associated with negative results of interrupting weather or environmental factors at any of its mines.
Freeport-McMoRan's recent quarterly performance has been strong. The company most recently topped analyst predictions by noting EPS of $0.46. Revenue has also climbed by almost 16% year-over-year. Analysts project that this trend will continue as the company could report upcoming earnings growth of nearly 40%.
Its copper projects bolster the firm's significant gold enterprises. Copper is a key component in emerging green technologies, a fact that could drive copper prices upward independent of the broader movement toward gold as a safe haven. This may be a contributing factor when analysts set an average price target for Freeport-McMoRan of $53.07, a full 23% higher than current levels.
On the other hand, investors should watch out for volatility in FCX shares. The share price is up 7.3% in the last year, but it is also down about 20% from its highs in May of this year.
NEM: Stock Momentum, Size, and Growth Prospects
Among U.S.-based gold miners, Newmont Corp. (NYSE: NEM) offers an attractive degree of stability. The firm has a terrific 31% stock improvement in the last year and is currently valued at more than $61 billion, making it the largest publicly traded gold mining company by a wide margin.
Despite its size, analysts continue to see room for Newmont to grow. EPS has grown consistently in recent history and the company is expected to post future earnings growth of almost 21%, continuing this trend. With a forward P/E ratio of 18.8, Newmont may be undervalued compared with some of its large mining peers.
Newmont also offers a comparably attractive dividend yield of 1.88% as its annualized three-year dividend growth has topped 15%. However, the company has a dividend payout ratio of -37.5% due to its having paid out a dividend while taking losses. This may give investors pause, particularly if Newmont is not able to return to profitability in an upcoming quarter. Newmont's announcement earlier this month that it would divest some of its Australian operations for up to $475 million will likely significantly impact this area.
Mining Stocks: Opportunity and Risk
Targeting mining stocks that are closely tied to the price of gold is inherently risky given the commodity's tendency sometimes to behave atypically. Despite their status as safe havens, precious metals can be volatile as well. Both Freeport-McMoRan and Newmont target metals besides gold, which helps to insulate them from a rapid reversal in gold prices to some degree. At the same time, global uncertainty, inflation, and interest rate changes may continue to create favorable conditions for gold, which is liable to send these and other mining outfits higher.
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Smartsheet Is a Smart Buy for Traders and Investors: Here's Why
Smartsheet (NYSE: SMAR) is a smart buy because of its growth, operational quality, cash flow, and capital return. That’s why private equity firms are in talks to buy it; they see deep value in the business and its stock. The takeaway is that Smartsheet will either get taken over at a premium to today’s prices or won’t. If it does, investors stand to make a quick 10%, and the gains will be greater if it doesn't.
What is Smartsheet? It is a cloud-based SaaS firm focused on workflow and project management. Clients include nearly 85% of the Fortune 500 and 90% of the Fortune 100, statistics which prove its utility for business. Firms looking to take over the business include a partnership between Vista Equity and Blackstone (NYSE: BX), which are reported to be nearing finalization on an agreement worth $8 billion. If completed, it would be among the largest takeovers of the year. The $8 billion target price works out to about $56 per share or a nearly 10% premium to the market cap, with shares trading near $52.50.
Smartsheet Is Growing and Monetizes AI Today
Smartsheet reported a solid Q2 and gave guidance indicating strengths will continue through the year’s end. Revenue growth is slowing, but the $276.6 reported is up 17% compared to last year and outpaced the consensus by 70 basis points on increasing client count and deepening service penetration. Subscription revenue, the company’s core business, is up 19%, offset by an 8% decline in Professional Services.
The critical details concerning revenue are the 17% increase in ARR and 113% net retention rate, which point to sustained growth at current levels as the client count grows and existing clients lean into expanded services. Regarding the client count, the number of clients contributing more than $100K in ARR grew by 23%, followed by a 17% increase in clients contributing more than $500K in ARR and a 6% increase in small businesses.
The margin news is the best in the report, with GAAP and adjusted margin improving at all levels. Adjusted margin, which matters regarding cash flow, improved by 800 basis points to 16%, doubling last year’s results. The net result is a GAAP profit of $0.06 compared to last year’s losses, and adjusted EPS is up nearly 3x to $0.44, beating the consensus by 5000 basis points or 50% better-than-expected. The cash flow and FCF set records with FCF of $57.2 million, or 21% of the revenue, and are expected to remain strong for the foreseeable future.
Smartsheet Gives Cautious Guidance, Shares Rise
The only bad news in Smartsheet’s report is the guidance, and even that is not bad, only in alignment with the robust analysts' expectations. The company expects sequential and YoY revenue growth, with YoY growth slowing to a pace of 15% to 16%, a low bar to beat. The earnings are expected to run near $1.375 for the year, which is also a low bar to beat, given the momentum in revenue growth and widening margin and a primary reason analysts lifted their price targets for the stock.
MarketBeat.com tracked 10 analyst revisions the first day after the release, with 80% raising their price targets and the two outliers reiterating targets above the consensus. The 10 lead to the high-end range, or another 4% to 5% upside, in addition to the 5% implied by the consensus. A move to consensus would set a multi-year high and break the market out of its consolidation range, setting it up to continue higher in 2024.
The technical action is suggestive. The market is moving up from the bottom of a range and is on track to break out of the range and set new highs. The current highs are providing resistance but may be broken soon. If so, the technical targets are the magnitude of the trading range added to the breakout point or a gain of $26 at the low end. The high-end target is the range magnitude as a percentage of the price or 100% from low to high. Adding that to the breakout point puts this stock above $100.
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