Numerous technology and semiconductor stocks fell today, with Micron (NASDAQ: MU) and Cypress Semiconductors (NASDAQ: CY) falling 8.7% and 7.0% respectively. I want to focus on the impact of this slide, and encourage investors to look at this as a great time for considering new opportunities for long positions in these companies.
I formerly wrote a piece on CY (you can read it here) and their growth potential as the Internet of Things (IoT) market grows, particularly with the popularity of smart technology entering the home and offices. Micron specializes in flash memory and storage, useful across the gamut of computing applications including mobile, workstation and IoT. For investors holding, be re-assured: the semiconductor industry is not going anywhere. As major firms move money out of technology holdings and into banking, which broadly saw an increase in price (ref. BAC, JPM, WFC), prospective investors would be foolish not to consider investing in a few technology stocks as stock prices begin to shore up.
While many investors (me included) are unsure what the outlook of the tech industry currently is, I think that this severe drop is a necessary correction, but that growth should still be expected for this sector. Many investors were spooked by Morgan Stanley’s cautionary expectations on pricing for NAND and labeling the stock still as overvalued. While I agree that the stock is overvalued, from considering the fundamentals of the company and their potential to further grow, I think that Micron is a great buy once it appears the stock has stabilized.
Considering the last 3 months, Micron has still seen incredible growth of 40%, including its most recent tumble. The RSI indicator shows that the stock is seriously undervalued, and I think that the ADX should be heeded at this point as it does not indicate that the stock has completely lost all of its momentum. Considering the last two support lines, it seems that we are reaching the previous support line around $42.50; yet I do not think that investors have any need to worry about the health of the stock unless the stock breaks through both support lines.
Price for MU for the last 3 months, with two support lines indicated in maroon. Relative Strength Index (RSI) and Average Directional Index (ADX) beneath. The ADX and RSI are both based on a 14 period calculation. Full size available here.
As a long-term value investor, I also think that the picture for CY is not as bleak as it instinctively appears. On the contrary, I believe that the stock has great potential, at a great price for new investors. Similar to Micron, CY is undervalued as indicated by the RSI and surprisingly, the ADX is not at an all-time low after the recent dip. Looking at the 50-period moving average, it shows that the stock has made sustained growth over the window of consideration, and that it will likely continue to perform well.
Price for CY over the last 3 months with 50-period moving average indicated in orange and support line in red. RSI and ADX below. Full size available here.
However, for all my optimism, it would be foolish to not look at the reasons for the sell-off. Morgan Stanley has downgraded its view on a number of semiconductor and tech stocks before its report on lower expectations for NAND memory pricing and a word of caution about the industry in general. Yet their price target for MU is up to $55 from $39, which gives bullish investors somewhat of a confidence boost. Regardless, stock valuation depends largely on investor confidence, and if Q4 reports show slowing growth, investors may begin to migrate away from technology in a more serious fashion.
In conclusion, I believe that this recent sell-off of technology and semiconductor stocks is not a major cause for concern for investors with open positions as long as the slide does not continue. For new investors, I think that this is an excellent opportunity to enter in a long position once prices stabilize. My word of advice to those who are nervous about continuing to hold, or to enter into a position would be to wait and see to determine whether this is a major change in market sentiment, or just an instinctive sell-off. Between CY and MU, I think that these stocks should continue to give investors a great return year-on-year and continue to outperform the competition.
Disclosure: I am/we are long CY.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I may also be interested in initiating a long position in MU over the next 72 hours.