Trouble Brewing For Micron? Plus Nvidia, Acadia, Visa, MasterCard, Altria
Parts of the market continue to perform, while other parts are continuing to struggle. The chip stocks Nvidia, Micron, and just continue to come under tremendous pressure, and what had been stellar years are beginning to become, well mortal.
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AVGO data by YCharts
Nvidia’s trading pattern just continues to deteriorate and for now seems to point to a stock that could continue heading lower. The next level of concern should come around $175, from there it is a long way down.
Micron shares attempted to rally, but failed to break resistance at $45 and have turned lower. What seems startling as we continue to look more closely at this name, is how earnings estimates are expected to fall over the next three years.
As the chart below shows estimates are expected to fall from 7.98 in fiscal 2018, to $6.79 in 2019, and $6.21 in 2020.
MU EPS Estimates for 2 Fiscal Years Ahead data by YCharts
While revenue estimates show flat revenue growth over the next three years, which proves problematic for the stock going forward. No revenue growth plus earnings contraction equal margin deterioration. 2017 has been a good year for Micron and margin expansion, should it go the other way it could foretell further declines in the stocks. Look at the correlation between gross profit margins and the stock price.
MU Gross Profit Margin (Quarterly) data by YCharts
Interesting for sure.
Visa and MasterCard
Another set of stocks like Visa and MasterCard, which got slammed before have not only bounced back but are now higher than they were before the steep sell-off on December 4.
V data by YCharts
A tale of two tapes, What does it mean? Not sure, it could be year-end profit taking or shorts that are starting to pile into the chip stock. Nvidia and Micron have seen an uptick in short interest recently.
NVDA Short Interest data by YCharts
Talk about a comeback story, but have you noticed shares of Altria recently? It was crushed in the mid-summer, falling from $74 to under $61, and now they are back to $72. It shows how irrational the market can be at times, and why panic selling isn’t always the right thing to do.
The FDA had purposed changing the rules around nicotine levels in cigarettes, and the stock tanked. But any change to the regulations would likely take years to happen if it ever happened. So now, the stock is rising as reality comes back to the market’s sense.
Acadia And The ETF’s
Lastly, behold the effects of index funds and ETFs, the subject Acadia Pharmaceuticals. When you look at the chart of the IWM, the ETF for Russell 2000, and Acadia stock price, you don’t see much.
ACAD data by YCharts
But when you do it as a ratio, it looks like the chart below. What is most fascinating is that the IWM has risen by nearly 32 percent over the past three years, while Acadia is down about 8 percent. But when Acadia falls, it stays at a ratio of nearly 5.25 to the ETF.
Fundamental Chart data by YCharts
The same happens when compared to the IBB.
Fundamental Chart data by YCharts
Interesting for sure, it tells us that sometimes stocks go up and down for no reason other than because ETF’s or indexes are going up and down. It is important to remember that when ETF are falling in price the underlying stocks that make up the basket of shares in the ETF are also being sold, and when ETF rise, they are buying the stocks in the basket.
In this case, we can see the effects because Acadia is very tightly held for the most part, with the Baker Brother and Fidelity owning nearly 35 percent of the shares, while index funds for Vanguard and Blackrock own another 11 percent.
Even more, the Biotech ETF ($XBI) owns 2.2 percent of Acadia shares, while the iShares Nasdaq Biotech Fund ($IBB) own 1.36 percent of shares.
Which way will Acadia go from here? Just watch the IWM and IBB and multiple or divide, it could be just that easy. That’s if you aren’t investing in it for the long-term.
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Michael Kramer and the Clients of Mott Capital own shares of $ACAD $MA $V $MO
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Tags: #technology #biotech #ACADIA #MASTERCARD #VISA #MICRON #NVIDIA #ALTRIA #ETF #CHIPS #STOCKS