Micron Stock Is a Tough Buy Amid Coronavirus Concerns

Stocks to sell

Stocks everywhere are getting roiled by rising concerns that the coronavirus from China is quickly turning into a global pandemic. Semiconductor stocks are getting hit twice as hard. And Micron (NASDAQ:MU) stock is getting hit three times as hard.

Micron Stock Is a Tough Buy Amid Coronavirus Concerns

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In February, the S&P 500 has fallen 8% off its highs, the iShares PHLX Semiconductor ETF (NASDAQ:SOXX) has dropped 11%, and shares in the memory chip maker have shed 13%.

Investors shouldn’t expect things to change anytime soon.

The coronavirus remains a highly volatile and unpredictable situation. Of course, it will inevitably pass one day. But, it will do a lot of damage in the meantime, especially in Asia.

Micron has a ton of exposure to Asia, from both a supply and a demand perspective. The company’s revenue and profit trends — which were supposed to rebound in 2020 — will likely remain depressed for at least this current, if not next quarter, too.

So long as those numbers remain depressed, Micron stock will have a tough time bouncing back.

Challenging Times for Micron

These are challenging times for Micron.

Micron is a big player in the DRAM world, deriving about 70% of its revenue from its DRAM business. It’s no secret that most of the world’s DRAM supply comes from South Korea. Outside of China and next to Iran, South Korea has been one of the countries hardest hit by the coronavirus. Factories in that country have been largely shut down. So, there already are and will continue to be some serious supply chain disruptions in Micron’s most important market.

At the same time, Micron has a ton of demand exposure to Asia. China accounted for about 15% of Micron’s revenues last year. Hong Kong and Taiwan combined to account for 18% of revenue. All together, the Asia Pacific region accounted for over 40% of revenue.

A big portion of that market has come to a standstill amid the virus outbreak. Demand for things like memory chips has similarly fallen off a cliff. At least, personal computing giants Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) have said as much, with both of them cutting this quarter’s revenue guide amid depressed Asia Pacific demand.

With supply and demand trends set to deteriorate for the foreseeable future, Micron’s revenue and profit trends will remain weak for the foreseeable future, too. Ultimately, that will weigh on the stock.

Things Will Get Worse, Before They Get Better

Before the coronavirus outbreak, the core fundamentals in the company’s DRAM and NAND markets were improving, buoyed by rebounding demand.

But, now everything has changed.  Rebounding demand, is falling demand. Rising revenues, are falling revenues. Expanding margins, are compressing margins. Strength in MU stock, has become weakness in the stock.

To be sure, the outbreak will pass. Pent-up consumer demand and additional fiscal stimulus will drive a v-shaped recovery in Asia’s memory chip market. Micron stock will bounce back.

But, that’s all a few weeks — if not a few months — away.

So there’s no rush to buy this dip. Instead, watch the technical levels and follow the headlines. Once the stock shows support at critical technical levels and the coronavirus headlines start to improve, buy the dip.

Until then, watch things play out from the sidelines.

Bottom Line on MU Stock

Micron stock is a tough buy amid the coronavirus outbreak. Things here will eventually get better. But, they will probably get worse first. So, stay on the sidelines, and wait for things to get better before buying this dip.

Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by TipRanks, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.

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