After the market closed yesterday (March 4) Marvell Technology Group (MRVL) reported fourth quarter fiscal 2010 earnings of 40 cents a share (excluding items). That was 3 cents a share above the official Wall Street consensus. Revenue climbed 64% from the fourth quarter of fiscal 2009 to $843 million, just a tad above analyst consensus. Strength came in storage (sales up 5%) and networking (sales up 10%).
The best news in the current quarter, however, came on gross margins, which climbed 2.2 percentage points to hit 60%. That’s an all-time high for the chip company and is significantly above the 58.6% gross margin expected by Wall Street.
Normally the first quarter of the company’s fiscal year—the quarter that ends in April—shows a 7% to 10% seasonal decline in sales. In that context Marvell Technology Group’s guidance to Wall Street for a flat to 2% decline in that quarter counts as a sign of major continuing strength for the company. So too does the company’s increase in gross margin targets going forward to 58% to 60%. That indicates that Marvell believes the new margins are sustainable and the savings from its cost reduction program aren’t based on one-time gimmicks.
The conference call wasn’t completely sunshine and buttercups, however.Â
The one worry that management did express was over supply constraints in hard disk drive components and capacity constraints at chip foundries. (On the other hand that sounds like good news for Jubak’s Picks Taiwan Semiconductor Manufacturing (TSMC).)
The stock sold off slightly after hours on even this good news. Not surprising since Wall Street had conducted one of its maddening exercises in hyping results just before they’re announced in the days before Marvell reported. The consensus earnings estimate may have still been officially 37 cents a share, but in the days before the report I saw analyst notes calling for 39 cents or 40 cents.
That made the surprise much less of a surprise.
As of March 5, 2010, I’m raising my target price on Marvell Technology Group to $27 by December from the previous $26 by December target.
Full disclosure: Â I own shares of Marvell Technology Group in my personal portfolio.
Or China and currency…
I bet its going to have to do with loans in China…
cat,
When I first started investing in ETF’s, I bought what I thought was a long position in oil. It turned out to be a short. Fortunately, oil went down, and I made money off my mistake. Most profitable mistake I ever made…
Ed,
I’ll do you one better. I think it was late 2008 when I wanted to buy Marvel Entertainment (MVL)…but typed in MRVL for Marvel Technology…it was about 2 weeks later before I realized what happened.
Jim’s recommendation Ambev (ABV) is starting to look pretty sweet today, approaching $97. With over 95 cents per share in dividends coming later this month, what’s not to love? I’m buying some today.
Hmmm…I think Jim must be writing “War and Peace” today…it’s awfully quiet around here…
Here is a truly scary article about the carry trade bubble:
http://www.forbes.com/2010/03/05/government-interest-rates-markets-intelligent-investing-carry-trade.html?boxes=Homepagelighttop
Thanks Jim!
And now that I have your secret about Briefing.com, I WILL CONQUER THE WORLD!!!
*evil cackles into the distance*
Or maybe not… 🙂
I am a complete moron! I’ve been talking down MRVL, when I MEANT MXWL. Too many “m”s…
EdMcGon, Forgiveness granted. (But only because I never make a miistake myself. Ever.) You could see thge rising tide of hype in the day before MRVL’s report. Always pays to disregard the sell off after hours from traders who zre only looking for the mo. Figuring out if a report is a miss or a positive surprise is difficult too becasuse unless you read a lot of the original analyst reports you really don’t know what special items are in/out of the consensus on earnings. Briefing.com does a good job at looking at when a beat/miss is really a bear or a miss. Their Platinum leverl subscription is worth the money. I subscribe myself.
Jim,
I stand corrected on MRVL, and I humbly ask your forgiveness.
“Roubini Says ‘Super Cautious’ China to Limit Yuan Gain to 4% ”
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahJH2_wLDmBY&pos=5
Ugly
“China to Nullify Financing Guarantees by Local Governments ”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIcTfdm5rWdY&pos=2
Looking for <5 stocks:
There were lots of such stocks last year (remember BAC and JDSU at $3) – the world was going to end last March and those who were brave enough to pick some of these (actually almost any of those penny stocks) have made a killing. I was brave enough to do so, but was not brave enough to hold onto them! Kept selling the winners throughout 2009 with fractional gains of what could be had….
In any case, the point here is that one should be ready to buy when such opportunities arise. Earlier, such chances occurred once in 10 years, now I have a feeling that they will be more frequent. Can we be disciplined enough to hold on to cash for the days when irrationality rules, that is the question. It is difficult!
“Sunshine and buttercups”? I thought great aunt Tote taught them all to me. That’s one she didn’t … well “Lord love a duck !”.
Thats a start:
China’s Wen May Struggle to Meet 3% Inflation Target (Update1)
To sustain long-term growth, China is trying to rebalance the economy toward consumption and away from investment and infrastructure spending. As part of that drive, the government pledged yesterday to raise health and social-security outlays by more than 8 percent in 2010 and expand pensions. Transportation spending will be cut 2.7 percent. ”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAXPaRlwTCG8&pos=6
Reuters reported that Australia’s Rio Tinto and BHP Billiton could hold out for and get 80% increase in the price of iron ore. Morgan Stanley has tipped iron ore prices to rise 60% and Japan’s Nomura Holdings Inc says a 70% hike is likely.
http://steelguru.com/news/raw_material_news/MTM1NTk4/Iron_ore_price_negotiations_-_Analysts_see_80pct_hike.html
Thanks for the notes everyone. I should also give credit where credit is due. I held onto my first and only triple digit gainer with none other than Jim Jubak with FSUMF last year. Thanks again, Jim.
marr.bo,
Your question is a great one. Wouldn’t we all like to hit a few of those triple-digit gainers? I’m afraid, though, that you are assuming all stocks are relatively equally poised to thrive or fail. If you couch the search for these companies in terms of reward/risk, though, the list gets very short very fast. Folks with money and contacts (like those in charge at Blackstone Group (BX)) make a living by supporting and nurturing corporate growth outside of the harsh world of public trading. They make money other ways too, but their expertise is not something you pick up in the workaday world. Without business and market expertise, the reward/risk equation is a tough one. If, however, you combine almost fanatical dedication to gathering and evaluating information, especially in a field where you already have good fundamentals, then you may approach the pros on reliability. But being limited to the public markets can take about ten fold out of the returns that can be generated in the private equity markets.
Hitting a winner on somebody else’s advice does not make one an expert! You have to walk the dusty road alone, or at most with Jim on your iPad. Now, the guy who offered you BX – up 4.05% today – has a risky $1 pick whose rewards (think of ‘pot-odds’ in poker) make it look like a no-brain cinch. It’s in my field of professional expertise, so I know some of the reasons it might fail. I’ve had dinner with the CEO. I am a shareholder. If you want the name of the company, I’ll be happy to post it here. But if you trust any joe blow posting on the internet, I worry for your portfolio.
@mar.bo –
I bought both UIS and QTM after that article came out. Watched them drop a bit, but am currently up nearly 200% with both! QTM seems to have a $3 cieling it is having trouble breaking through, and same for UIS but at $50. Both did well today. I do plan on selling both when I hit the year mark of owning them next month, and take the money and run!
“The stock sold off slightly after hours on even this good news.”
Slightly had turned into terrible by the time I looked late yesterday but by the close a few minutes ago it was up a bit. Just goes to show that you can’t always judge what the future will bring by looking at the after hours trading.
Jim, we really appreciate not only your “regular” comments concerning trends but also the fact that you keep us up to date on your picks. Thanks.
UIS had a reverse stock split. Gain was still good.
It’s hard to dismiss the mkt MRVL is in. Assuming the economy keeps coming back, roaring or not, technology’s lifespan in the corp environment is not very long..the ‘bad times’ have been around longer than the lifespan and as the purse strings loosen, buying of tech will need to be done. More so as more projects, which were shelved, come back online.
course…it presumes a continued, albeit slow, uptrend in the economy too 🙂
marr.bo,
just an fyi that UIS did a 1 for 10 reverse split so your 2300% is really 230%….still a great return. I was lucky enough to buy both of those at that time.
Thanks Jim for this update!
marr.bo
Just because a stock may be priced low, doesn’t mean that it is cheap. You could be paying a lot more than it is worth. It’s cheap for a reason, in the past, it had problems…and probably still does.
Jim (and everyone else),
I’d be interested to hear your take on “penny stocks”. For example, i was just looking over an old watch list. One of your colleagues at MSN picked QTM and UIS back in April 2009 which were both around $1.20, had been hit hard by cash problems.
Both beat the market, QTM gaining about 120% since then up to $2.50 or so. But UIS gained 2,300% and went up to $38. Now thats something you could retire on.
How do we spot these? Should we be looking at diamonds in the rough at these <$5 prices?
hmm, i thought yesterday they announced earnings of 31 cents a share that was below expectations by 6 cents a share or something causing the stock to crash by over 6% in after hour trading. This is odd conflicting news, but I am happy none the less as a shareholder!
agre-ED!!!!!
Great news to me on both MRVL and TSM…thanks a bunch for the update!! 🙂