The personal computer is back and we're so caught up in the ongoing tariff war dialogue that we are missing one of the great stories out there. I, myself, didn't believe it until HP Inc. (HP) reported still one more fabulous quarter and after that one there's no denial.
We are always searching for double digit gains wherever we can find them and the shocking thing about that last quarter from HP is that we found them in notebooks, up 14%, desktops up 17% and work stations up 11%. These had been moribund categories. The only growth in the industry had come from cellphones.
Now the numbers are reversed.
This sea-change is of huge importance to some companies with stocks that have gotten ridiculously cheap and shouldn't be cheap any more.
I want to start with Micron (MU) . This incredibly good manufacturer of DRAMs and flash memory is the biggest beneficiary of the resurgence. Micron, which hit a 52 week high today is selling at five times earnings. That's just plainly ridiculous if pricing is steady which it is, and HP said pricing would remain strong for 2018. That's a new view for HP and it means that Micron can still be bought even here.
In a little noticed interview last week Morgan Stanley's Joseph Moore sat down with some of the management team from Micron and I have to tell you I was blown away about what I head of Micron's business away from the personal computer, namely the data center and its voracious appetite for DRAMs and flash memory. The story's a great one because the data center grows in tandem with the cloud.
Data centers eat flash like no other devices which means that the stock of Western Digital (WDC) should be bought given that it sells at an estimated six times next year's earnings. The consensus had been that flash pricing will collapse. I think that's changing as the year goes on. Now it is true that Western Digital also had hard drives and that's an issue as I think drive pricing may not hold up. But the stock's so cheap I don't care.
If the PC is growing again and the data center's on fire then it makes no sense that one of the best semiconductor companies, Intel (INTC) , trades at 13 times earnings with a 2.42 balance sheet and an amazing management team. Remember you also get autonomous driving if you buy the stock of Intel after their purchase of Mobileye last year.
I can make a strong case that Advanced Micro Devices (AMD) should be breaking out, too. It's not cheap like the other stocks in the group but it does have gaming which may be the hottest sector in tech, save the cloud. Nvidia's stock (NVDA) has now consolidated for ages and it, too, fits the depiction of what I want to buy if the personal computer is back and the data center's strong.
The aversion to buying any of these stocks stems from the boom bust cycle of the old days. I now think that these chips just aren't the commodities so many think they are, a point made repeatedly in the Morgan Stanley interview. That says Applied Materials (AMAT) and Lam Research (LRCX) have spent enough time in the penalty box to merit attention.
The action off a return to growth of the PC, the steady burgeoning data center and the gaming business is now too great to ignore. This group is back and it's way too cheap. It's time to buy the breakout, as I believe the numbers are too low and the valuations are just plain out of whack with the rest of the stock market.
