We recently published a list of the 15 best stocks to buy recommended by Hosking Partners, and in this article we'll take a look at how Micron Technology Inc (NASDAQ:MU) stands in comparison to the other best stocks to buy recommended by Hosking Partners.
Hosking Partners was founded in 2013 by Jeremy Hosking and offers a single global equity strategy. The firm takes a capital cycle approach to investing and appeals to investors seeking long-term returns and innovative thinking. The portfolio includes a diversified range of stocks across a range of industries, including AI, shipping and financial services. After earning his Masters from Cambridge University, Jeremy Hosking spent 26 years at Marathon Asset Management as a founding partner and lead portfolio manager, where he helped develop the capital cycle approach to investing.
In a recent blog on shipping, Hosking Partners believes that understanding cycles and global trends in the different shipping classes is essential to successful investment in the industry. Currently, shipping (covering container, dry bulk, product tanker and LNG subsectors) represents 1.25% of the portfolio. Since 2010, world trade has declined as a percentage of GDP due to deglobalization, accelerated by the COVID-19 pandemic and geopolitical instability due to the Russia-Ukraine war. This trend, coupled with the energy transition, is expected to benefit shipping by limiting future supply, increasing commodity price volatility and enabling cross-border trade.
Moreover, shipping is a large source of carbon dioxide emissions, accounting for around 3% of global emissions. Environmental regulations aim to reduce emissions, but uncertainty about future fuel technology is hindering investment in new ships and tightening supply. The industry's efficiency, measured in emissions per tonne-kilometer, remains high compared to other modes of transportation. The shipping industry is at a critical crossroads where profound transformation is being driven by AI, the energy transition and ESG considerations.
Another industry covered by Hosking Partners is copper mining. Copper is often seen as a barometer of economic health and is essential for the energy transition, including electric vehicles, power grids and wind turbines. Wall Street banks are optimistic about copper prices and expect a big increase. Citi analysts suggest that prices could surge to more than $15,000 per tonne in the next two to three years if a strong economic recovery occurs. Meanwhile, their base case sees demand growing more slowly through 2025 and 2026, rising to $12,000 per tonne. Bank of America also raised its copper price target for 2024 to $9,321 from $8,625, citing tight mining supplies and rising demand from the energy transition as the main drivers.
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However, some experts are cautious. Colin Hamilton of BMO Capital Markets argues that commodity markets tend to self-correct, and continued supply issues could lead to demand adjustments and prices to fall. Hamilton suggests that high price targets may be temporarily achievable, but demand adjustments may continue. The market may have a slight surplus due to the increase in mining supply. Mining supply is forecast to grow by 4-4.5%, mainly due to new greenfield and brownfield projects. Despite the short-term surplus, a shortage is expected in the long term as regulatory and political challenges in South America may hinder the development of new mines.
At Insider Monkey, we stick to stocks that hedge funds concentrate their investments in. The reason is simple: our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150 percentage points (more details here).
Is Micron Technology Inc (MU) the best stock to buy, according to Hosking Partners?
A close-up view of a computer motherboard with integrated semiconductor chips.
Micron Technology, Inc. (NASDAQ:MU)
Hosking Partners stock value: $98,559,243
Hosking Partners 13F Portfolio Percentage: 3.64%
Number of hedge fund holders: 120
Micron Technology Inc. (NASDAQ:MU) originally specialized in designing and manufacturing DRAM for PCs, but has since expanded into the NAND flash memory market. The company's management expects to generate “hundreds of millions of dollars” in revenue from high-bandwidth memory (HBM) in FY24, and is optimistic about generating “billions of dollars” in FY25. Micron has already sold out its HBM production capacity for this year and next.
The company is currently focused on expanding its market share in the HBM segment by expanding its customer base and developing more efficient HBM chips. HBM growth is closely linked to the increasing demand for AI chips, which could drive Micron's revenue growth.
Recovery in memory prices and favorable inventory conditions also contributed to Micron's strong earnings. In the third quarter of 2024, the company reported revenues of $6.81 billion, up 17% from the previous quarter, beating guidance, due to robust AI demand and effective execution. On June 25, Rosenblatt Securities gave Micron shares a “buy” rating and a $225.00 price target.
Micron Technology Inc. (NASDAQ:MU) is seeing improved profitability due to strong demand for its memory and storage products. The company is seeing sales surge, beating profit expectations for the third quarter of 2024, and plans to increase capital expenditures to meet rising demand. Additionally, Micron Technology Inc. (NASDAQ:MU) is investing heavily in high-bandwidth memory (HBM) production, which is expected to generate billions of dollars in sales in fiscal 2025, up from just a few hundred million dollars in 2024.
Following the earnings release, Bank of America analyst Vivek Arya reaffirmed his buy recommendation on Micron Technology Inc. (NASDAQ:MU) with a $170 price target.
“Management highlighted that both FY24 and FY25 volumes are sold out and pricing is largely secured, leading to healthy revenue and margin expansion (HBM is a revenue driver for GM),” Arya said.
In its Q2 2024 investor letter, ClearBridge Value Equity Strategy said the following about Micron Technology, Inc. (NASDAQ:MU):
“Stock selection in the IT sector proved to be the largest contributor to performance, especially driven by the strong performance of Micron Technology, Inc. (NASDAQ:MU). The company, which designs, develops, manufactures and sells memory and storage products, continues to perform well along with other AI beneficiaries as demand for new and additional storage, which is essential for storing and training large-scale language AI models, is expected to continue to increase.”
Overall, MU ranks #2 on their list of best stocks to buy, according to Hosking Partners. While we acknowledge MU's potential as an investment, we believe AI stocks have a better chance of delivering higher returns in a shorter time frame. If you're looking for AI stocks that are more promising than MU but still trade for less than 5x their earnings, check out our report on the cheapest AI stocks.
Read next: The $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and NVIDIA Has “Become a Wasteland” According to Jim Cramer.
Disclosures: None. This article was originally published on Insider Monkey.
