Micron Single Digit P/E Bearish?
P/E Ratio is not a reason to buy a stock…ever!
What an interesting week we just had and a happy fourth to my readers. Let’s quickly recap my thoughts from the last post, /nq is king and tech is in trouble. We saw a rotational market for the most part with semiconductor equipment and memory producers getting smashed Thursday. If you haven’t read last weeks piece I suggest you do as I take a more broad look and show some technical analysis I am seeing that should help going forward.
Semiconductors Have a Long Way To Go
/NQ is king, I will always say it and it always shows the way. We are in for a wild ride and it’s not to the upside especially for semiconductors.
The weakness in tech usually precedes a broad market correction so have your head on a swivel this quarter. Something else that needs to be observed is the overnight move in the kospi index, South Korea as its main stocks within the index are memory names which tend to mirror our memory stocks the next day.
If you want to play options on this look at DRAM 0.00%↑ as its premiums are cheaper but does not move as volatile as SNDK 0.00%↑ MU 0.00%↑ so if we don’t get big swings they won’t pay but imo we are in the beginning phase of a big correction in tech that lasts till early September with memory names being at center stage of this correction.
Something I want to touch on about these memory stocks and the “low P/E ratio” and low forward P/E ratio everyone keeps talking about. This is the biggest retail trap ever and some seasoned traders I follow even are falling for it, I always remember the saying “buy them when they are expensive sell them when they are cheap.” I remember when I was first learning about P/E ratios price to sales and all these other useless metrics people on cnbc use to sound smart while tricking retail, I was looking at housing stocks in 2005/6.
I remember the trailing p/e getting to 4 on TOL 0.00%↑ and forward p/e estimates were like 9 at one point and before people started waking up to the cancelations and foreclosures were buying them while big money was selling. The builders were putting deposits on any land they could get their hands on to take down lots, builders were constantly raising prices due to demand surges, they paid any price for contractors to just show up at their job first so they were ahead of the competition. Sound familiar? Hyper scalers are prepaying for 2026 memory product up front before delivery, home builders walked from deposit they gave to farmers for land because it was cheaper to take the hit then take down the land. Memory companies keep raising prices and memory companies are expanding production at any price to get more production online going into 2027-2030. Companies find ways to get cheaper products and China at some point will be appealing enough at certain price points customers will buy China and not Micron, money talks. I know the end user/customer is totally different but if it walks like a duck and quacks like a duck it could be goose but it sure does seem similar.
Ask your self one question, would you buy NVDA 0.00%↑ 3 years ago at 300 times trailing earnings or here at roughly 20 times forward estimates? Shouldn’t the stock be running higher instead of being sideways for the last year basically because it’s cheap? I think price action of the last year is telling us something and leave that for you to figure out…
The overall macro is telling me be very cautious with deflation about to set in, I think we could stay sideways in index’s for another week but once we get cpi July 14 we should see a deflationary print flat to negative so do not fall for it as being bullish. If we get a .1 or more to the upside I am taking it as actually a good thing where as a 0 to negative number bearish as it will confirm the fed is behind with cuts and markets may fall on this type of report.
A couple trade ideas into next week….
It’s sitting at the top of an old range it set before moving to 140/160 range, look for a bounce here at this demand zone to take it back to the higher range or visit the down side range near 80. Lose 80 which was the gap up on earnings and all bets are off.
I went over this above but the puts on this are not priced for any outsized move like I think is coming, memory is so over crowded when I see the real grifters on X pushing these names nonstop I don’t want to be on that side of the boat with them.
Software
Between now and Labor Day I want to add for long term these names NOW 0.00%↑ FIG 0.00%↑ MDB 0.00%↑ PLTR 0.00%↑ and ORCL 0.00%↑ as it’s so beaten down. Add on dips, I may add leaps on FIG and common on NOW…
TLDR….
I think memory has a correction coming that nobody is positioned for and this will include names like INTC 0.00%↑ AMD 0.00%↑ ARM 0.00%↑ that have moved with the memory trade. Watch SOXL 0.00%↑ DRAM 0.00%↑ SNDK 0.00%↑ MU 0.00%↑ for clues as these are over bloated names everyone has piled into over the last couple months. Ignore the p/e narrative as it’s a trap….Happy 4th!