Prem Watsa, often called Canada’s Warren Buffett, has a knack for sensing when a stock has reached its potential and when another offers a chance to grow. His recent decision to sell Micron Technology (NASDAQ:MU) and pivot to Orla Mining (TSX:OLA) is a classic example of his investment strategy at work. Driven by the performance and potential of each company. So, let’s get into more on why Watsa made this move.
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What happened?
Micron Technology, a titan in the semiconductor world, has had a wild ride. It had revenue growth of 93% year over year in its most recent quarter and a forward price-to-earnings (P/E) of just 11.56. Therefore, Micron appears undervalued at first glance. Its profit margins, however, are razor-thin at just 3.1%, and its return on equity is a small 1.74%.
Despite a strong recovery post-pandemic, including a market cap that ballooned to US$113 billion, Micron’s growth is largely tied to cyclical trends in the semiconductor industry. With recent dips in demand for memory chips and fears of a global slowdown, it’s understandable that Watsa might see limited room for Micron’s stock to climb further.
However, Orla Mining offers a glittering opportunity in a sector less tied to such cycles: gold mining. Orla’s quarterly revenue shot up by an impressive 64.7%, and its earnings surged nearly 300% year over year. These figures, combined with a forward P/E of 9.68, position Orla as a leaner and meaner growth machine. It’s also worth noting that the TSX stock is heavily favoured by insiders. Right now, over 51% of shares are held by those closest to the company — a strong vote of confidence in its future.
Future outlook
Micron’s forward outlook, while stable, lacks the explosive growth potential of Orla. The semiconductor space is fiercely competitive, with giants pushing the envelope. In contrast, Micron has carved out a niche in memory chips. It hasn’t diversified into high-margin areas like artificial intelligence (AI), which could limit its growth trajectory. Orla, meanwhile, is perfectly positioned to capitalize on the rising demand for gold — a safe haven during economic uncertainty.
Orla’s financial health is another attractive point. Its debt-to-equity ratio is a manageable 12.68%, compared to Micron’s heftier 31.19%. Plus, Orla boasts a robust current ratio of 4.54, reflecting its ability to meet short-term obligations comfortably. With $180.9 million in cash reserves, Orla is set to fund further growth without relying heavily on debt or equity raises.
Watsa’s choice
Watsa’s decision could also reflect a broader strategic shift toward Canadian equities — a move aligned with his role as a Canadian investor. Investing in Orla supports the domestic economy while diversifying his portfolio into hard assets like gold. These are traditionally more resilient during economic downturns.
The recent performance of Orla’s stock is another reason to be optimistic. Trading near its 52-week high of $7.16, the TSX stock has seen a consistent upward trajectory — far outpacing its peers in the mining sector. With gold prices holding steady and central banks stockpiling the metal, Orla is poised for further gains.
In contrast, Micron’s stock, while recovering, has been volatile, with a beta of 1.18, indicating it’s more sensitive to market swings. The tech sector as a whole faces headwinds, including regulatory scrutiny and supply chain disruptions. Watsa may have seen this as a good time to lock in profits from Micron and redeploy them into a more stable and promising asset.
Bottom line
Prem Watsa’s move signals his belief in the untapped potential of Orla Mining. The TSX stock’s efficient operations, strong balance sheet, and market position make it an attractive investment for those seeking growth and resilience. For Watsa, it’s not just about riding the waves. It’s about positioning himself ahead of the tide. And in this case, Orla’s glittering prospects seem far more enticing than Micron’s semiconductor cycles.
