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Chip Stocks Perform The Best, But Not Micron – Predictions For 2Q


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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XLK Chart

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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.

S&_P 500


Semiconductors

I think the semiconductor stocks are going to be what lead the market higher, helping to pull the technology sector up with it.

semicondutor

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.


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 Chart

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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Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.

© 2018 Mott Capital Management, LLC.  Use, publication or reproduction in any media prohibited without the permission of the copyright holder.

Tags: #sp500 #tech #technology #semiconductors #micron #predictions #stockmarket

 

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