The Fool’s Take
At first glance, Micron Technology might not look like a slam-dunk buy. The designer and maker of computer memory chips is not profitable on a trailing-12-month basis. That’s also true for Micron’s free cash flow, which has been negative over the last four quarters. Trailing sales are down 34% from the all-time highs seen in the summer of 2022. Investors don’t seem thrilled about these financials, either; Micron’s stock price was recently down 41% from its all-time high reached in June.
But there’s reason to be optimistic about Micron, because it’s tapped into the opportunities in artificial intelligence. Computer systems built for training advanced AI software require lots of memory; so do the systems that deliver business-ready AI services when the training is done.
And do you know what your smartphone needs if you want it to deliver AI services without a cloud computing hub? That’s right — plenty of memory! The latest wave of AI-enabled flagship phones is expected to inspire a large number of upgrades from older, AI-less handsets. The combination of more phone sales and more memory per phone should give Micron a massive revenue boost — and that’s just the smartphone piece of the AI puzzle.
If you’re bullish on the spread of AI, consider grabbing a few shares of this high-quality semiconductor stock on the cheap.
Ask the Fool
From A.C., Westwood, N.J.: I see that Exxon Mobil has a total market value near $500 billion. Is that too high?
The Fool Responds: Not necessarily. A stock’s value reflects what investors are willing to pay for it, based on how it’s performing and on expectations for its future growth. That market cap (recently $494 billion) is a steep sum, but that doesn’t necessarily mean its shares (recently priced near $111) are overvalued.
With ExxonMobil, you might check out a few numbers to get an idea of its valuation. Its price-to-earnings (P/E) ratio, for example, was recently 13.3, a bit above its five-year average of 12.6. Its forward-looking P/E ratio, based on expected future earnings instead of past earnings, was recently 11.7, below its five-year average of 12.8. Never depend on just a few measures, but these two do suggest that the stock is close to being fairly valued.
If you’re looking at its peers and see that Chevron’s market value was recently $255 billion, that doesn’t mean Chevron is cheap or Exxon Mobil is overvalued. Note, for example, that Exxon Mobil’s total revenue for the past 12 months was recently $341 billion, while Chevron’s was $197 billion. Companies with higher revenue and earnings tend to sport higher valuations.
From F.B., Chesterfield, Mo.: What’s an underwater mortgage?
The Fool Responds: It’s something you should hope to avoid if you’re a homeowner. It means that you’ve bought a home with a mortgage, and the value of your home drops so much that you now owe more than the property is worth. (It’s also referred to as negative equity.)
If you don’t need to sell the home any time soon, the situation might right itself over time.
The Fool’s School
When it comes to financial matters such as saving for retirement, investing and managing portfolios, various surveys find that women feel less confident and knowledgeable than men. That’s a shame, because multiple studies have found that women tend to be better at investing.
For example, the 2021 Women and Investing Study from Fidelity found, after analyzing the activity of more than 5 million Fidelity customers over a decade, that women’s annual returns outperformed men by 0.4 percentage points. (Yes, it’s a seemingly small difference, but it can mean tens of thousands of dollars over the long run.) A 2018 study from the U.K. found women’s investments outperforming men’s by 1.8 percentage points. And a 2023 Wells Fargo report also found women outperforming men in investing — while taking on 15% less risk than men.
What’s going on? Well, one factor may be that women tend to trade less often. A Vanguard study from 2023 found women trading about 30% less often than men. A powerful way to build wealth over the long term is to invest in great companies or great index funds, and then to simply add to them over time and let them grow. (With companies, it’s smart to keep up with their progress, to make sure they’re still doing well.) When you buy and sell stocks frequently, you’re often not giving a solid company the chance to perform for you.
It’s important that women can do so well when investing, because most people need to be saving and investing for retirement. It’s vital for women to feel more comfortable with money because at some point, many will be on their own, financially and otherwise — as single people, divorcees or widows.
People of any gender who don’t feel knowledgeable or confident about investing can change that by reading up on the topic and by simply starting to invest, perhaps with a low-fee S&P 500 index fund.
My Smartest Investment
From C.D.: My smartest investment move was deciding to do nothing. In other words, I employed a lot of patience.
The Fool responds: Doing nothing is a great way to build wealth, and you are indeed smart for figuring that out. Superinvestor Warren Buffett has extolled the virtues of doing nothing for many years. In his 1988 letter to shareholders, for example, he explained that though many investors do a lot of buying and selling of stocks, “when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” In his 1998 shareholder letter, he expressed regret for selling his shares of McDonald’s, noting, “Overall, you would have been better off last year if I had regularly snuck off to the movies during market hours.” He has also quipped, “The trick is, when there is nothing to do, do nothing.”
Of course, you first need to buy shares of great and growing companies — ideally when they’re undervalued. Or just invest in a low-fee S&P 500 index fund. After that, the best thing to do is often nothing.
Who Am I?
I trace my roots back to my founding in 1897. A year later, I acquired the rights to my first patent, for an all-glass syringe. I was an early manufacturer of sterilized disposables. Today, with a recent market value of $68 billion, I’m a major global medical technology company focused on medical discovery, diagnostics and the delivery of care. My offerings include catheters, biopsy kits, blood collection tubes, needles, an automated medication dispensing system and much more. I have over 70,000 employees, make more than 34 billion devices per year and boast more than 33,000 active patents. Who am I?
Don’t remember last week’s question? Find it here.
Last week’s answer: General Dynamics