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Chip Stocks Perform The Best, But Not Micron – Predictions For 2Q
The semiconductor sector, despite the high levels of volatility, still managed to rise by 6 percent in the first quarter, while consumer staples fell by nearly 7.5 percent. The S&P 500 managed to slip just over 1 percent, not bad given how far it had dropped at one point.
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Predictions for the Second Quarter
I don’t see much changing in the second quarter, I think the markets are going to continue to be volatile, granted, I don’t think to the same degree as in the first quarter, but not like 2017. The earnings outlook remains strong, with Dow Jones S&P Indices, looking for earnings of $146.92 in 2018, and $161.51 in 2019. That is growth of 34 percent in 2018, and 10 percent in 2019. It leaves the S&P 500 trading at about 18 times 2018 earnings and 16.3 times 2019 earnings. Certainly not alarming multiples.
I’m going to live on the edge and predict the S&P 500 finishes the second quarter around 2,900. It is a bold call, and given the recent craziness, anything seems possible.
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Semiconductors
I think the semiconductor stocks are going to be what lead the market higher, helping to pull the technology sector up with it.
In fact, the recent 3-month average North American billing data, provided by Semi.org, suggests the business is still strong. There is a strong correlation between billings and the PHLX Semi. Index.
Additionally, the growth rates been trending nicely in recent years and have been avoiding the boom and bust cycle we have seen the past, and I think that lead to the sector seeing multiple expansion over time.
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Micron
I’m not sure Micron will be one of the stocks that lead the group higher, though. The stock has been extremely volatile in recent weeks, with a huge run-up in price. But also analysts are looking for earnings to fall in the coming years, from $10.81 in to 2018, to $9.84 in 2019, and $8.40 in 2020. Meanwhile, they are forecasting no revenue growth, kind of strange, espically since the stock has been getting all these upgrades and price target increases lately.
MU EPS Estimates for 2 Fiscal Years Ahead data by YCharts
I know, but the stock only trades at 5.3 times 2019 earnings estimates. I know. But stocks trade at cheap earnings multiples for a reason, and usually, it’s becuase the market doesn’t expect the good times to last. In the case of Micron, based on the revenue and earnings estimates, the market doesn’t believe the good margins can last.
I’m just telling you what worries me about Micron, like it or not.
More predictions over the weekend.
-Mike
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Tags: #sp500 #tech #technology #semiconductors #micron #predictions #stockmarket
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Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.