Bull v. Bear: MU Still "Cheap" Despite Massive Rally?

get your podcasts. Welcome back to Fast Market right here on Schwab Network. Bank of America reiterated micron as a top pick, keeping its buy rating and a $1,550 price target. Firm says memory may be entering a structurally strong phase, which would potentially lift Micron's earnings in fiscal 2030 to between 200 and $250 a share. The stock is making a comeback. It's on a five day winning streak. It's up over 20% during that time. It's still down 18% from its all time high, but has made a recent move back above $1,000 today, and that's notable. Our co-hosts are back, Tom White and Kevin Henkes. Let's see what the gentlemen have to say. Kevin, we'll start with you. Your thoughts on micron today. This stock has been a roller coaster in the last 12 months. I see price target prices of $113 a year ago to $1,255 to something around seven, just below $800 between 800 and $750 in the last couple of weeks, and then right back up to 12 to $1030 in the last few days. So this stock is all over the board. And why? Because to put it bluntly, supply still drags or still follows demand. Demand is outstripping supply across the board. I think the Apple news about not buying chips from China helps micron. I thought that was part of the fuel today. Bank of America made them their top pick and everything. All the estimates are surging higher sales plus 23% EBITDA plus 24% free cash flow plus 41%. So all the numbers are good. But but and this is a big but what's the proper valuation for this name. That's what everyone's trying to figure out. The stock is all over the board. Nikola. Tom. Oh yeah. And I know you're going to be showing us a trade here talking about exactly that. Tom. What are your thoughts on micron please today. Yeah. The build out AI infrastructure build out continues to ramp up. I think one of the keys is, you know the amount of memory that's needed for this tech build out is pretty massive. And it was mostly on the GPU side, the data center side, but now the CPU side started to ramp up. Also, Kevin mentioned that supply demand divergence that's happening has allowed micron and others in this space to raise prices astronomically. You know, whether it's Dram, whether it's NAND, whether it's what micron is trying to focus the most on high bandwidth memory, their pricing is just through the roof because demand is outstripping supply at this point. And I think one of the keys, if you listen to their last couple of earnings, is that they're giving guidance out two, three, four years now. They're sold out through this year. They're sold out through half of 2027. They don't report until late in September. But we'll get some clarity on that also. But yeah, I think if you just look at the price action Kevin mentioned valuation, that's going to be key because on a forward p e basis, this is trading at about seven times. That's single digits. So they've grown into their valuation because their earnings the E part of the p e has been exploding so much at this point. So yeah it's hard to kind of fault these stocks. I mean yeah you can try to chase them. But are you chasing them really. I mean that pullback that we saw in July maybe was warranted a little bit. But now we're seeing another resurgence. And then Sandisk's earnings in this space kind of reconfirm the fact that hey, growth is here and it's going to last longer than maybe a lot of investors had anticipated initially. Yeah, the growth is here and it's really moving the stock around. We said how it's up even 25% just this month. So let's get to the example trades. Kevin you start us off please. You know the easiest thing for me to say is I have no idea where where Micron's stock is going. From the end of June to the end of July, it's off about $500. It's rallied back some of that up until now. But what I did, it doesn't have earnings till late. It's one of the last September 23rd it puts out earnings. So we have lots of time. So what I looked at is something around movement. So I went out to the September 11th expiration. And I looked at the expected move out till September 11th, which gives me 25 days. And it's about somewhere around $170, 100 and between 150 and $170 is the expected move there. And so what I looked at going out till September 11th, I bought the I trading in Iron Condor, which means I'm buying the an out of the money call vertical. I'm buying an out of the money put vertical. Each spread is $20 wide, so I'm buying the 1180 1200 call vertical. That's currently around 150 $160 above where the stock is trading right now. Then I went in and bought the 989 60 put vertical. That's about 160, $170 below where it's trading right now in line with that expected move. So one of these spreads I would like to go to $20. What did I pay for that. Something around $11. It was trading around ten. Jumped up to around 11. Remember whatever you buy it for that's the risk on this trade. And if one of these spreads were to go to $20, that would be the profit you could make at or near $20 at expiration. But you're playing for a big move ■when this stock makes big moves. But the risk on this trade is that it stays in that range and doesn't make a big move. Tom. I don't know where it's going. I'm playing for something big in terms of movement. Yeah it's a high priced stock. It's got a beta of over two. So it trades on a percentage basis double what the S&P 500 does on a daily basis on those percentage moves. So it does have that ability to move. And it's $1,030 stock. So keep that in mind. But let's look at Kevin's need a move type of strategy. Long iron condor where you're buying out of the money verticals. Let's set this up. September 11th weekly options 25 days to expiration. As Kevin mentioned, buying the 980 put selling the 960 put. There's the long put vertical. On the upside, buying the 1180 call selling the 1200 call. So it's a $20 wide need a move type of long iron condor. You're paying roughly about $11 debit for it. That's your risk 1100 bucks with the potential to make about 900 bucks. Now what are your break evens on this one? Well, if you're paying that $11 1191 to the upside, you want it to go above there or you want it to go below 969 to the downside. Now, Kevin mentioned that 1180 strike that you're long on the call side. That's about $150 out of the money to the to the upside. That's about what the option market's pricing in on a plus or minus basis over the next 25 days. The downside the 980 put that's only about 50 bucks below the current share price. So you don't need that big of a move to get below that break even. 969 to the downside on this one. So it's skewed just a little bit on this. But this is a type of strategy. If it gets outside of these break evens and starts to expand in price, that's when you want to maybe manage this position. If the market's open, maybe close all or a portion of it or half of it. If you start getting that move and it starts to expand in price, you can sell it for a higher level. That's the idea here on this strategy. Kev. I went a little bit more directional. Yours is a bull bear debate in itself because you can have it's a bullish and a bearish trade. I went a little bit more bullish if you think the stock's going to move to the upside. But I wanted to offset some of my some of my costs. So instead of doing a vertical or just buying a call out right. We did an unbalanced call butterfly in the August 21st weekly cycle or monthly cycle expires in four days. This is really short term positioning. We're going to buy one of the 1030 strike calls. That's right at the money basically. And then you're going to sell two of the 1100 strike calls at $70 above the current share price, and then buy one of the 1120 strike calls as a package. You're going to pay roughly about a $20.50 debit. Well, it's trading about 19 bucks right now because the stock has pulled back. So the debit you pay is going to be your risk. So if you pay $220.50, just over $2,000 in risk, if you pay $19, $1,900 in risk at apex is out at or near that 1100 strike, which sets up about with the one standard deviation, move on just that option series, which is plus or -$63. But Kevin, even if this stock explodes above 1120, it's still more than a double in profitability. Yeah exactly right. The numbers are big in micron right. It's a $2,050 debit on this spread. But the numbers that that you can make are big as well. There is risk. Everything we do here is risk defined. And so you're looking for an upside move targeting that $1,100 strike. And so you're long a $70 call vertical short a $20 call vertical. And so you're looking for a move towards $1,100. Like I said, the risk is the debit paid on this spread. Tom. Yep. Kevin's with the bull bear himself. Nicole. But then bullish call butterfly here for my example. All right well thank you both. We know the AI spend is there and it's giving a boost