Marvell Technology Group Ltd. (MRVL) And Billionaire David Einhorn’s Investor Letter

David Einhorn GREENLIGHT CAPITALWhy does Einhorn still believe in Marvell Technology (NASDAQ:MRVL)? After breaking down what billionaire David Einhorn and Greenlight Capital is betting on for 2013 it is time to look at why he is still a big believer of Marvell Technology Group Ltd. (NASDAQ:MRVL) . Per Greenlight’s fourth quarter 2012 letter to investors, the hedge fund managed to return 4.9% during the fourth quarter. Since inception in 1996, Greenlight has managed to return an annualized 19.4% net of fees.  

Einhorn admits that Marvell was the hedge fund’s biggest loser in 2012, having fallen from $13.85 to $7.26. Yet, the stock has recovered some of this in 2013, now trading around $9.50. Putting the pressure on the stock has been earnings under-performance and a verdict that will require Marvell to pay out some $1 billion to Carnegie Mellon University for patent infringement.

Einhorn said this about why, despite its recent troubles, Marvell is still in his portfolio…

Though we’d love to just admit we are wrong, sell the stock, and move on, we continue to like the opportunity here. Marvell is on the cusp of a large product transition which, to put it mildly, is not in the valuation.

The disk drive business continues to be weak thanks to a declining PC market. However, plans to become more competitive in the mobile market should be what helps Marvell meet its margin targets, where its current operating margin is around 14%, versus its target of 20% to 25%.

Other notable semiconductor plays include NVIDIA Corporation (NASDAQ:NVDA), QUALCOMM, Inc. (NASDAQ:QCOM), Texas Instruments Incorporated (NASDAQ:TXN) and Intel Corporation (NASDAQ:INTC) . Longer-term demand for NVIDIA should be a product of the fast growing mobile market, namely new graphics processors, which is 60% of revenues. However, the company still has reliance on the PC market. QUALCOMM, Inc. (NASDAQ:QCOM) is one of the best semiconductor picks in the industry, namely due to its exposure to the mobile market. This includes its high margin WCDMA business, where gross margins were over 60% for the trailing twelve months. Texas Instruments posted recent earnings that showed EPS at $0.23, compared to $0.25 for the same quarter last year. This is on the back of revenues that were down 13% year over year. Texas is in the process of restructuring, with plans to move more into the analog business and away from the handset business.

Intel, albeit the microprocessor leader, has seem some of the most robust pressure due to a declining PC market. The stock is down over 20% the last twelve months. Even with a 4.2% dividend yield, it is a tough call for me to throw investment dollars at the company. The past has served Intel well, with the company growing EPS at over 28% annually for the last five years, but the company’s stock has been unimpressive over this time — down 2% cumulatively. The next five years do not appear to be as robust, with Wall Street estimates putting annual growth at 12%.

Stacking up all the tech companies from above, and Marvell is the cheapest, with some of the best growth opportunities:

Price to Earnings Price to Sales
Marvell 11.5 1.7
NVIDIA 14.2 1.8
Qualcomm 15.2 5.5
Texas Instruments (NASDAQ:TXN) 19.1 3.0
Intel 10.9 2.0
Five Year Earnings Growth (Wall Street estimates)
Marvell 12%
NVIDIA 10.7%
Qualcomm 14.6%
Texas Instruments 9%
Intel 12.3%

In looking over the valuation metrics, Marvell and Intel are two of the cheapest stocks, and the two also have solid growth estimates, so which is better? Based on Marvell’s ability to generate cash and balance sheet, Marvell may well be the best bet:

Historical Five Year Cash Flow Growth
Marvell 68%
NVIDIA 7%
Qualcomm 11%
Texas Instruments -4%
Intel 9.5%
Debt Ratio Current Ratio
Marvell 0% 4.6
NVIDIA 0% 4.5
Qualcomm 0% 3.4
Texas Instruments 28% 2.4
Intel 16% 2.4

Don’t be fooled. I am admirer of Einhorn and would consider taking a closer look at what Marvell has to offer investors. Einhorn has been investing in Marvell since the third quarter of 2011, and while it might appear he is trying to catch a falling knife, where the stock has continued to slide more than 35% since the end of 3Q 2011, there is still hope for the company. To boot, the tech company pays a 2.5% dividend yield.

See what else we found in Einhorn’s letter, Part 1 (Saviors of 2012), Part 2 (Big Bets for 2013)

The article Marvell Technology And Billionaire David Einhorn’s Investor Letter originally appeared on Fool.com and is written by Marshall Hargrave.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!