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Head for the hills: Get out of these stocks at a run and don’t stop running

Micron (MU)

With it’s forward P/E of 4.83, Micron is cheap. Compared to NVIDIA (NVDA), a company and a stock I like much better, a purchase of MU shares buys you eight times the amount of forecast earnings. When you look at the long term, however, it starts to seem as though perhaps a factor of eight is too low, given that NVIDIA’s revenue, and earnings, and (slightly different) earnings per share are all on a sharp, upward trajectory, while Micron’s have all been whipsawing up and down for years—well, actually decades. Micron’s supporters are quick to point out that a lot has changed, and so it has. This is technology, and things are always changing. What hasn’t changed is that Micron makes memory chips which inevitably become cheaper and cheaper to produce as a techno-industrial cycles progress, meaning that Micron can produce more and more of them, right up to, and often a bit beyond, the point where no one wants to buy them anymore. Check out a long-term chart of MU stock—one that goes back 30 years or more, a range not currently offered by my chart service—and you’ll quickly see the quagmire that this stock turns into whenever the least little thing goes wrong for the economy.

Chart courtesy of www.stockcharts.com

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Julian Close

Julian Close became a stockbroker in 1995. In his 20 years of market experience, he has seen all market conditions and written about every aspect of investing. Julian has also written extensively on corporate best practices and even written reports for the United Nations. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.