This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
Transition away from Volatile Stocks
The move of hedge funds away from volatile stocks is cyclical in nature; when the economy is doing well interest rates and bonds have a higher rate of return. These rates of return are important because they determine the base rate you can expect in a year with little to no risk. If tech stocks are giving slightly higher rates of return but at a much larger risk, mutual funds and hedge funds will move away from stocks that don’t offer higher returns in favor of an essentially guaranteed return from a bond, it is a simple analysis of alternatives.
Goldman cited Micron because they have been trailing the market including the NASDAQ for the last 12 months, and have seen their stock value almost halve since its peak in June. Micron is a large player in the DRAM and Flash storage industry, in this industry prices of NAND and DRAM have fallen sharply in 2018, despite what has looked to be price fixing among DRAM makers to keep the price high. Micron’s joint venture with Intel (NASDAQ:INTC) didn't see the kind of commercial success they were expecting and as a result the companies are working on their own technology independently but sharing a facility in Utah.
Micron has an excellent balance sheet doubling their retained earnings in 2018 and investing heavily in fabrication facilities. The investment in Xpoint can help if prices of DRAM and NAND continue to fall and insulate the company from too much harm, however, their stock has fallen before despite having excellent earnings. The only consideration for their stock to fall would be the outcome of the price-fixing scandal and increased supply of DRAM.
Facebook has seen an extraordinary amount of headwind when it comes to regulators due to the sensitivity of the data they possess and the legislators not fully understanding the technology behind it. While the stock price keeps falling the institutional investors are pulling out of the stock to try and salvage what’s left of their portfolios. The actual operation of the business hasn’t widely changed despite all this movement among the market. The two schools of thought behind this are that the stock was overvalued before, or that it is being undervalued now, the only difference is bad press not the activity on the platform.
Shift in the Market
Goldman said they see room for both companies to fall further, and realistically anything could happen in this market, especially considering this has been the worst Q4 since 2008 so far. The move from hedge funds to more stable stocks might show that the market could be turbulent for the foreseeable future.