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Dip in value makes Micron potential buy

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Shares of America’s biggest memory chip maker, Micron Technology (Nasdaq: MU), have dropped by more than 40 percent over the past year, and are worth considering.

Micron, recently sporting a market value near $21 billion, has been hurt by a weak PC market, with desktop and laptop computers losing ground to smartphones and tablets. Indeed, in its latest quarter, the company posted a 3 percent year-over-year drop in revenue and a big 39 percent drop in earnings.

All is not lost, though, as Micron is moving away from low-end chips and into higher-margin products. It’s developing chips for the mobile market and for servers, which remain in demand due in part to the growth of cloud computing.

Meanwhile, Micron’s 2013 acquisition of Japan-based rival Elpida for $2.5 billion has played out well, giving the company valuable economies of scale and a major share of mobile DRAM chips. The purchase boosted Micron’s memory market share to No. 2 in the world; even better, the company instantly gained a 50 percent boost in total memory capacity for about a third of the cost of building its own new facilities around the globe and training new workers.

The chip business is cyclical, and Micron isn’t for the faint of heart, but with recent and forward-looking price-to-earnings (P/E) ratios near 7, well below the stock’s five-year average of 15, Micron’s shares are appealingly priced.

Ask the Fool

Q: What other major stock indexes exist beyond the S&P 500? – D.E., Venice, Florida

A: The Dow Jones industrial average is the most famous one, containing 30 American titans, such as Boeing, Disney, General Electric, Coca-Cola, Nike, Visa and Wal-Mart. The Standard & Poor’s 500 is another large-cap index, featuring 500 of America’s leading companies. Its components account for about 80 percent of the total market value of the U.S. stock market. The Dow and the S&P 500 are often viewed as proxies for the overall U.S. economy.

Other major indexes include the Russell 3000 Index, encompassing roughly 3,000 of the largest U.S. companies based on market capitalization (current share price multiplied by number of shares outstanding). Together, these companies make up about 98 percent of the U.S. market’s value. The top small-cap company index is the Russell 2000, a subset of the Russell 3000 made up of about 2,000 of the smallest companies in the Russell 3000. The Dow Jones Wilshire 5000 is even broader, including almost every publicly traded U.S. company. For broad international coverage, the Vanguard Total International Stock Index represents almost all of the non-U.S. world stock market.

There are indexes for many broad or narrow international regions, such as China or Latin America. Other indexes address sectors, including banking, biotechnology, energy, health care, insurance, telecommunications and transportation. Learn more at mutualfunds.htm.

Q: What good books are there on the history of the stock market? – M.C., Madison, Indiana

A: Check out “Learn to Earn” by Peter Lynch (Simon & Schuster, $16), Peter Bernstein’s “Capital Ideas: The Improbable Origins of Modern Wall Street” (Wiley, $20) and “Devil Take the Hindmost: A History of Financial Speculation” by Edward Chancellor (Plume, $18).

My dumbest investment

I bought my house in 2005. Just three years later, my next-door neighbor bought his house, quite comparable to mine, for a third of what I paid. I’m not going anywhere soon. – J.K., Ferguson, Missouri

The Fool responds: Ouch. Many people avoid stocks, thinking they’re too volatile, and stick with real estate, not realizing how volatile home values can be, too.

Nobel Prize-winning economist Robert Shiller has long studied the housing market, with his data showing housing prices growing at a compound annual rate of just 0.3 percent over the past century (adjusted for inflation), while the S&P 500 has averaged roughly 6.5 percent (also inflation-adjusted). And that’s just an average. If you were unlucky and bought in the wrong place at the wrong time, you’d have fared worse.

Indeed, according to a recent report from, since the mortgage crisis of a few years ago, “more than 4 million U.S. homeowners owed the bank at least 20 percent more than their homes were worth.”

Meanwhile, you can’t liquidate a home quickly, and you can’t sell off part of your home in order to generate some needed funds. If you want to buy a home in order to have a nice place to live, go right ahead. Just don’t think of your home as a great investment. Homeownership can give you security and mortgage-interest deductions, but you’ll also face property taxes and repair and maintenance costs.

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