Chips are back, baby!

Micron Technology Inc. (Nasdaq: MU) is parting the Red Sea, rallying more than 12% and leading semiconductor stocks to higher ground.

Nvidia Corp. (Nasdaq: NVDA) and Advanced Micro Devices Inc. (Nasdaq: AMD) are both up about 5%. Applied Materials Inc. (Nasdaq: AMAT) is up nearly 4%. Even Qualcomm Inc. (Nasdaq: QCOM) is gaining ground, up about 3.5%.

Heck … the entire sector is in rally mode, with the iShares PHLX Semiconductor ETF (Nasdaq: SOXX) up more than 3%.

It’s a midsummer miracle!

It’s all thanks to Micron’s third-quarter earnings report … which must have been a doozy, right?

The headline numbers bear out that opinion. The chipmaker said it earned $1.05 per share versus expectations for $0.79 per share. Revenue rose to $4.8 billion compared to the Street’s target of $4.7 billion.

Micron even said that demand should recover in the second half of the year and that it had resumed some shipments to blacklisted Chinese tech firm Huawei.

So, everything is awesome! Everything is cool when you’re part of the semiconductor team!

The Takeaway:

Here’s what Wall Street is glossing over in Micron’s report:

  • Revenue actually fell 39% year over year.
  • Gross margins plunged to just 38.2% from 60.6% last year.
  • Earnings guidance is for anywhere between $0.38 and $0.52. That’s quite a range.
  • Demand is questionable at best, especially where Huawei is concerned.
  • Micron is also cutting capital spending … again.
  • The company has 150 days of inventory on the books — more than the 100 days of inventory it had in the last downturn.

Micron may be walking on water right now, but the stock is bound to sink once the initial euphoria wears off. That doesn’t mean there won’t be a second-half jump in demand, just that it likely won’t be as big as today’s 12% jump that MU is anticipating.

Your best move here is to take profits if you’re holding MU stock. There’ll be a chance to buy back in at a much lower price down the road.

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The Good: Poppin’ Tags

Walk onto the trading floor, I’m like: “What up, I got a big stock!” Are you pumped about this IPO from the thrift shop?

It’s time to get real. Like The RealReal — a soon-to-be publicly traded online luxury thrift shop.

The company bills itself as an environmentally friendly retailer, promoting “the recirculation of luxury goods” and contributing “to a more sustainable world.”

But we know where the real goods are. Is that $50 for a T-shirt? You bet. RealReal resells name-brand clothing and luxury goods with margins of about 25%. That’s quite a markup.

And business is booming like the bass out of your speakers. Orders rose 42% to $1.6 million last year, with an average order size of $446.

If that sounds compelling to you, look for Friday’s listing. RealReal starts trading at the end of this week under the ticker symbol REAL.

If you’re looking for the real inside scoop on making money from IPOs, check this out!

The Bad: BlackBerry Jam

BlackBerry Ltd. (NYSE: BB) stock is getting squished today. The company was once famous for smartphones with a keyboard — yes, those were a thing way back in the day.

Now, BlackBerry is trying to reinvent itself as a software security company … and it’s not going very well.

In its latest earnings report, BlackBerry proved that even a crucial acquisition wasn’t helping to turn things around.

In February, the company bought Cylance, a company that uses machine learning to identify security breaches before they happen.

The move should have added to BlackBerry’s bottom line. It didn’t.

Both revenue and earnings missed Wall Street’s expectations, bringing into question BlackBerry’s ability to effectively monetize its new acquisition.

As a result, BB is down nearly 9% today. If you’re still interested in BB after this, I have to assume you have an unhealthy obsession with blackberry jam, or that you just can’t give up that smartphone keyboard. This stock needs a lot more time to bake before things turn around.

The Ugly: Cereal Killer

I miss the days of eating Lucky Charms and watching Saturday morning cartoons. But I’ll bet General Mills Inc. (NYSE: GIS) misses them even more.

In an attempt to bolster earnings and revenue, General Mills bought premium pet food brand Blue Buffalo. It was a good move.

People love their pets more than pretty much anything else these days. But the boost to the bottom line was only temporary, as General Mills’ recent quarterly report shows.

Blue Buffalo’s sales jumped 38%, but it wasn’t enough to offset declines in other crucial products. Sales for cereal, yogurt and snacks dropped 2% in the U.S. and fell 10% in Europe and Australia.

As a result, both earnings and revenue missed expectations. General Mills is banking on the pet food market going forward, which is likely a smart plan. The company just opened a 400,000-square-foot plant for Blue Buffalo this past month.

It seems that pets are worth more in the market than kids right now. GIS is down more than 8% on the news. If General Mills can bank off this new trend, shares could come back. But we likely won’t find out until next quarter’s results arrive.

In the meantime, I’m going to have another bowl of Lucky Charms and watch some cartoons — if I can find any.

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Joseph Hargett
Great Stuff Managing Editor, Banyan Hill Publishing