The stocks of semiconductor companies Marvell Technology Group Ltd. (NASDAQ:MRVL) and Jabil Circuit, Inc. (NYSE:JBL) soared in after-hours trading on Thursday and maintained strong gains in the first hours of trading today on some positive developments. The Marvell Technology’s stock had opened over 7% higher, but slightly retracted to 3%, while Jabil’s stock has gained over 15% so far today. Let’s take a closer look at why the two stocks are rising and see how the best money managers in the world view these two companies.
We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 118% since then and outperformed the S&P 500 Index by around 60 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.
Marvell Technology Group Ltd. (NASDAQ:MRVL)’s stock rose because the company announced that it will lay off 17% of its global workforce in a corporate restructuring of its mobile platform business. Marvell Technology’s struggling mobile platform business made just $13 million in gross profit on revenue of $122 million in the first half of fiscal 2016. According to management, the company is downsizing its mobile platform organization “to refocus its technology to emerging opportunities in IoT, automotive, and networking”. If done correctly, the layoffs will increase the annualized operating earnings by $170-$220 million a year and accelerate Marvell Technology’s future growth. From our calculations, the restructuring could increase Marvell Technology’s future EPS by 15-20%.
Hedge funds are bullish on Marvell Technology Group Ltd. (NASDAQ:MRVL). Although the total number of hedge funds that are long Marvell Technology increased to 36 from 33 during the second quarter, the total value of their holdings declined to $695 million, from $1.02 billion, amid a 10% decline of the stock during the period. Nevertheless, these funds amassed over 10% of the company at the end of June. Among them, Dmitry Balyasny’s Balyasny Asset Management decreased its position by 39% to 4.68 million shares, while Cliff Asness‘ AQR Capital Management raised its stake by 43% on the quarter to 12.27 million shares.
Jabil Circuit, Inc. (NYSE:JBL)’s stock spiked because the company managed to beat fourth quarter earnings expectations. Jabil’s last quarter EPS was $0.53 per share, beating Wall Street’s numbers by $0.08, while revenue was $4.68 billion, exceeding estimates by $130 million. The company’s guidance is also strong with current quarter EPS between $0.56 and $0.74 on revenues in the range of $5.1 to $5.3 billion, versus the consensus expectations of $0.54 in EPS on revenues of $4.9 billion. From a valuation standpoint, Jabil shares are attractive, with a forward P/E of 8.23.