Chipping away
A little further back, but nonetheless exhibiting a big gain this year, is memory-chip maker Micron Technology, Inc. (NASDAQ:MU), which is up 119% through Thursday’s close. The company has benefited from both its acquisition of the defunct Elpida memory, which is expected to greatly expand its market share for a bargain-basement purchase price of $2.5 billion (that’s not sarcasm, by the way; this really was an incredible deal!), and also noted that cost reductions and demand are improving which is yielding better gross margins.
The one tricky thing about memory-chip makers is that we see this pattern repeat every couple of years. Memory providers are highly cyclical in that they’re governed by tech and consumer spending, which is ultimately dependent on the economy and the tech replacement cycle. At the moment, the tech replacement cycle is in full swing, but we’ve also learned as investors that this won’t last forever. Generally speaking, the best time to buy memory-chip makers such as Micron is when no one else wants them. When memory providers are outperforming nearly every other stock, as we’re seeing now, is precisely when you should be considering an exit stage left.
Source: RebeccaPollard, Flickr.
Game, set, match
Video-game and gaming accessories retailer GameStop Corp. (NYSE:GME), another company expected to be digging its own grave earlier this year, is up 111% year to date following its big second-quarter earnings pop on Thursday.
When the year began, there was speculation that the long-awaited new gaming consoles from Sony and Microsoft would have built-in fail-safes to ensure that used games couldn’t be played on either system. That fear has ebbed following news from both companies that approved channel used-game sales will be allowed. That’s great news for GameStop Corp. (NYSE:GME), which makes a good chunk of its profit from high-margin used-game sales. In addition, GameStop delivered 121% growth in mobile revenue in its recently released second quarter, proving to investors that it’s able to move beyond bricks-and-mortar channel sales.
The question, though, is whether GameStop Corp. (NYSE:GME)’s big boost on the heels of growing mobile and digital sales is enough to counter the potential revenue decline from store closures and the threat of a full-year same-store sales decline. Given how long it took these console makers to develop the next-generation of consoles (six years), I have to believe that there’s a good potential for GameStop to sell off once these consoles become available.
There can be only one
I’ll be the first to admit that Netflix, Inc. (NASDAQ:NFLX)’s current valuation gives me a big case of indigestion, but it’s the only one of these three stocks with genuinely solid results.
