Mohnish Pabrai, a hedge fund manager in U.S. has one U.S.-listed stock. The U.S. equity markets are often described as being the most deep and liquid worldwide. Pabrai describes why it’s a semiconductor company. This year, after years of beating the market returns semiconductor stocks suffered a setback as volatility rose and investors moved from growth stocks to more secure investments. The iShares semiconductor ETF or SOXX, which measures the performance and trends of semiconductors is more than 20% down this year. Pabrai still believes in Micron Technology. Pabrai Investment Funds’ managing partner is the veteran investor. He is well-known for following Warren Buffett’s capital allocation and value investing principles. Micron derives the bulk of its revenue and profit from dynamic random-access memory (DRAM), a type of semiconductor memory widely used in digital electronics, Pabrai told CNBC Pro Talks on Wednesday. He noted that the DRAM industry is an oligopoly with three major players holding a combined market share greater than 95%. Samsung Electronics holds about 50% of the market, while SK Hynix (Micron) has approximately 25%. Pabrai stated that the memory industry used to be an awful business due to 15-20 players beating one another up. But it’s changed. It has changed over the years, when there are now three reasonable players who all want to make decent profits. They are not attempting to take market share away from the others. According to him, the market is saturated enough that it’s not able to take on more entrants. They are protected businesses. He said that he doesn’t believe there will be a fourth competitor in the space. However, I do think all of these players will prosper over the long-term. “I think Micron might do better than any other three is my guess.” Potential long-term The manager of the hedge fund believes that this sector will be able to benefit from several megatrends, which are driving chip demand. McKinsey & Company said the global semiconductor industry is poised for a decade of growth and projected to become a trillion-dollar industry by 2030. According to the global consultancy firm, 70% of growth is predicted to be driven by just three industries — automotive, computation and data storage, and wireless. “I think that we are in the very early stages of artificial intelligence, cloud computing, self-driving cars … I think memory usage is going to go up dramatically in the [coming]Pabrai stated that it could take years. It’s worth looking into. “It is at a very high, you know single digit price-to-earnings ratio and I believe it will trade substantially higher at some time,” he stated. Analysts and investors use the price-to earnings ratio to determine the stock’s value. High P/E can indicate that the stock’s current price is higher relative to earnings, and could be overvalued. Low P/E may indicate that earnings are not being met by the stock.
Circuit boards are home to semiconductors.
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Mohnish Pabrai, a hedge fund manager in U.S. has one U.S.-listed stock. The U.S. equity markets are often described as being the most deep and liquid worldwide. Pabrai describes why it’s a semiconductor company.
