Stocks don’t just move up or down. Sometimes, they’ll have a sideways pattern. And that may entail bouncing up and down in a narrow range. Oftentimes, once the range-bound trading ends, the stock will make a big move.
The next move isn’t always known in advance. It can depend on market conditions, as well as a company’s operations and how they’re faring. But it’s more likely that a stock will move higher if earnings are strong.
That could be the case with semiconductor company Micron (MU). The company reported strong second-quarter results, but shares were hit with a wave of market fear the day after.
Micron reported a $1 billion surge in sales of AI chips, a 50% increase. That’s a sign that the AI infrastructure buildout still has plenty of room to go.
Currently, Micron shares have traded flat over the past six months. But strong earnings have pushed the stock’s valuation down to 20 times earnings.
Action to take: Investors may like shares here, as the narrowing trading range suggests a breakout in the months ahead. If current market fears subside, the breakout will likely be to the upside.
At current prices, Micron also pays a 0.5% dividend.
For traders, the July $110 calls, last trading for about $5.20, could see mid-to-high double-digit returns in the coming weeks on a move higher for shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.