Candidates to double in 2018

I actually think Wix could easily double…

I also like the chances for Talend,, Pure Storage, Hortonworks, The Trade Desk, and Teladoc…

…I could even see Shopify doubling…

That was my response to Saul. I thought I’d flesh it out a bit here.

Shopify and Wix are my highest confidence positions among these, I added to Micron yesterday, to Pure Storage today, and earlier this month, so it’s fair to say these have become higher confidence than they were before (though I’ll note that Micron is still my second smallest position). We’ve talked about Alarm some, but I would like to discuss the other two now.

Pure Storage (PSTG) is a company that provides flash storage arrays. These, I understand, are a breakthrough product, high-performance enough to be used in conjunction with offerings like Nvidia’s, for one example. The most impressive thing about this company to me is, they’ve been perfectly predicting exactly what they will do, from revenue down to expense levels and operating margin, for several quarters…maybe even for years. And of course they slightly beat each time. But it’s dang impressive, especially since their revenue is only partly recurring.

Well get this, Pure’s PS ratio is currently 3.9. Three point nine! What? Is there any reason at all that they won’t double in 2018 if they just continue doing what they say they will? Nope.

Micron (MU) makes chips for four different business units:

Compute and Networking (CNBU) - read: DRAM
Storage (SBU) - read: SSDs
Mobile (MBU) - read: NAND
Embedded (EBU) - read: Auto

Everything is growing fantastically. Revenue was up 71% for the quarter. The problem? Everyone thinks the party will end sooner than later and they’ll start losing money again. It’s not an unfounded fear. Their fixed costs are high, so if demand drops precipitously they could be in trouble. But there are reasons to be positive. They’re diversifying into these 4 business units really well, and most are not showing any shakiness of demand at present. They’re also making bottom line profit hand over fist right now, allowing them to pay down debt and really solidify their footing. How much are they making? Last quarter:

Micron: 2,678M
Nvidia: 838M
Facebook: 4,707M

Random examples, I admit. Just note that Micron is a 54B dollar company, while the other two are 123B and 525B respectively. All that to say, there’s a WIDE margin of safety built in. Micron’s PE is 6.4.

Remember what happened to NVDA when the fear dissipated and the confidence built. They went from being a ~10B dollar company to over 100B in about a year and a half. A 10 bagger. Micron has already gone from ~10B to over 50B. Can they keep going? If so, do they stop at 100B or 300B? These are questions without answers. Can the PE of 6.4 go to 3? Yes. But it can also go to 25. We’ll just have to see. But the point is, this is one that could easily double, and then still look relatively cheap with a PE ratio in the low teens.



re MU
everybody agrees their business is mostly a commodity, everybody agrees commodities go through cycles. Too much supply too little supply. So the question is how long do the cycles last, and how will I know when to get out, ahead of everybody else.

Are Micron’s chips nearly 100% commodity?

“Sooner rather than later”- will MU go up if it is later rather than sooner? What time span is the market anticipating? Not long probably.

The only commodity I know anything about is crude oil. And crude is actually not 100% fungible. Cycles there can last many years. I looked into buying oil related stocks near the crude bottom but the ones I followed never got super super cheap. So I never bought.

I did buy a small starter position in MU. Paying down debt will be rewarded in the next slowdown.

Personally, I view debt retirement a far better use of capital than stock buybacks.