It’s prudent to be cautious when a hedge fund manager takes to the airwaves to tout an investment idea…particularly when that investment has already risen considerably.

At the Robin Hood Investor Conference last month, some of the top hedge fund managers, including Bill Ackman, Ray Dalio and David Einhorn, presented their top investment ideas.

I love hearing Einhorn’s latest ideas. He’s known for his exhaustive research and convincing presentations. At the conference in New York, Einhorn shared his latest recommendation to buy shares of Micron Technology (Nasdaq: MU).

[ad#Google Adsense 336×280-IA]The conference was closed to the media, and the presentation hasn’t been made public.

But shortly after sharing his pick, Einhorn sat down with CNBC to talk about Micron and his other favorite investment ideas.

Micron Technology: Einhorn’s Top Hedge Fund Pick

Micron Technology is an Idaho company that makes memory for electronic devices including computers, servers, tablets, smartphones and video game consoles.

This memory is known as DRAM.

Historically, DRAM has been an incredibly competitive business with low profit margins.

However, Einhorn argues that the business is undergoing a massive improvement. That’s because there has been significant consolidation in the industry, which shrank from seven suppliers in 2011 to just three today. Less competition gives DRAM makers including Micron Technology far better pricing power.

The latest quarterly results confirm improved margins. In the latest quarter, Micron reported EPS of $1.51. That’s a vast improvement from the loss of 24 cents a share in the comparable quarter one year earlier. Those results also exceeded analyst estimates by nearly 20%.

Growing profits are why Einhorn likes Micron Technology. In a CNBC interview he said “You look at the [stock] multiple, and you look at what the earnings power can be. What we think is that the earnings are going to be a lot better than people think.”

How much better? Einhorn thinks Micron will have EPS of $3.50 in 2014 and $4 in 2015. Those projections are roughly 70% above the consensus Wall Street estimate.

Now, Einhorn isn’t the only hedge fund manager who’s bullish on Micron. Goldman Sachs reports that Micron is one of the top hedge fund favorites, with 82 funds owning the stock. During the third quarter, hedge fund ownership of the stock grew from 14% to 21% of the shares outstanding.

As a result of rising earnings estimates and aggressive buying by the “smart money,” Micron shares have been rising. In the third quarter alone, the stock rose from $13.50 to $17.60. With shares now trading at $21.50, the stock is up an impressive 229% in 2013.

Regardless of the big move for this stock, it’s important to understand the valuation. Micron Technology shares currently trade at 10 times the consensus Wall Street estimate for next year. That’s a 40% discount to the S&P 500 index.

But Einhorn thinks the stock is far cheaper. Using his EPS projection for next year, I quickly realized that he thinks Micron shares are trading at less than 6-times earnings.

I suspect that Einhorn believes shares are worth about $35 or 10 times earnings. That’s a 75% premium to the recent share price.

Now, I’ve made a lot of money over the past few years by investing alongside David Einhorn. I did so by going long on Seagate (Nasdaq: STX) and short-selling Green Mountain Coffee Roasters (Nasdaq: GMCR).

Immediately after hearing his pitch on Micron Technology, I bought some stock. I figured at the very least, it might be worth a quick trade.

The stock is up 9% already. And I think there are good reasons that it could go much higher.

Don’t get me wrong: this isn’t one of my top investment ideas. But in a market where many stocks are fully priced, Micron Technology looks like a cheap stock with meaningful upside.

— Ian Wyatt

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Source: Wyatt Investment Research

Full Disclosure: I currently own shares of Micron Technology.