By Larry Gellar
Here we have 5 mid-cap ($2 billion to $10 billion) tech stocks that are seeing heavy trading as of Friday, August 19th. Let’s see what’s driving these securities:
Sirius XM Radio Inc. (NASDAQ:SIRI) – SIRI has fallen a bit in the past few days, and some investors are speculating the possibility of a buyout. As discussed in a different Seeking Alpha article, John Malone may be interested in buying the company now that a potential Barnes & Noble (NYSE:BKS) deal is out of the picture. That article also makes the important point that Sirius executives have recently guided both subscription growth and free cash flow higher.
Other writers on Seeking Alpha present a more bearish view such as this article. Specifically, Sirius XM’s growth prospects may not be as strong as some investors believe because the economic climate is so problematic right now. The company’s debt situation isn’t terrific either. As far as Sirius XM’s actual operations go, we’re a bit worried about an interesting point brought up in this article.
Both HD and 4G radio could be fierce competitors for Sirius XM in the future, with the latter of those being provided by strong companies like AT&T (NYSE:T) and Verizon (NYSE:VZ). At this point in time, we can’t really justify paying 42.95 times earnings for SIRI.
That’s not to say that the negative earnings offered by Pandora (NYSE:P) are better, but the industry as a whole may not be a great place to put investment right now. Cumulus Media (NASDAQ:CMLS) is one of the few radio broadcasters actually turning a profit right now, so that may be a safer choice.
Advanced Micro Devices (NYSE:AMD) – Although AMD recently fell below $5.70, the stock is doing a bit better now. Despite tough competition from Intel (NASDAQ:INTC), AMD products are still being used widely, such as the latest Spy Kids movie. Many shareholders are also excited about the company’s stereo 3D projects, discussed here.
Those are especially important for the computer gaming industry, which we believe will see growth despite looming economic problems. AMD is also producing chips for tablets, another relatively strong sector. Another piece of news affecting AMD is earnings estimate revisions from analysts, which are detailed here.
As far as value metrics go, AMD is quite cheap right now. The price to earnings ratio of 5.32 and price to sales ratio of 0.62 are significantly lower than similar companies such as Intel, IBM, and Nvidia (NASDAQ:NVDA). Admittedly though, AMD’s operating margin for the past 12 months has been a weak 6.54%. Cash flows for AMD have also been weak with $1.051 billion leaving the company in 2010 and $52 million leaving the company in the first half of 2011.
More information about AMD can be found here, with that article making good points about the nature of AMD’s business. Specifically, AMD’s business is strong in the consumer market but less so with servers, which could be important for future growth.
Micron Technology, Inc. (NASDAQ:MU) – MU has fallen over a point in the past week, which is quite a lot for a company that trades around 5. The company’s troubles go back to late June when the company reported breaking even for Q3. With some analysts having estimates closer to $0.20 per share, this was a tremendous disappointment.
Products that utilize DRAM and NAND saw decreased sales, and the decline in average selling prices shocked many. Since then, some aspects of demand for DRAM and NAND seem to have improved, as discussed here. Other publicly traded semiconductors tend to work in different niches than MU, which makes it tough to compare. On the other hand, the price to earnings ratio of 8.31 doesn’t seem too unreasonable compared to the market as a whole.
What is concerning though is the price/earnings to growth ratio of 1.73. MU simply does not offer the quality associated with stocks that trade at this kind of growth multiple. The company’s poor cash flows can be partially attributed to paying off debt but are still not great regardless. Note that $518 million cash left the company in the 39 weeks ending June 2nd, 2011. Additionally, margins present a mixed picture; although operating margin of 12.82% should probably be considered above average for the industry, gross margin isn’t great, 24.26% over the last 12 months.
Marvell Technology Group Ltd (NASDAQ:MRVL) – MRVL stock was up over 5% Friday, as investors applauded the company’s earnings. Net income was actually lower than this time last year but still somewhat higher than analyst expectations. As discussed here, management seemed pretty confident at the earnings conference, and there is now reason to believe that the company will do fine despite a diminished Research in Motion (RIMM), (Note that Research in Motion buys quite a bit from Marvell).
As seen by news like Hewlett-Packard’s (NYSE:HPQ) desire to spin off its PC business, many believe that personal computing is on the decline. While this could certainly have an impact on MRVL, we think this company’s operations are varied enough to offer safety in a changing marketplace. We like comparing MRVL to companies like LSI Corporation (NYSE:LSI), STMicroelectronics (NYSE:STM), and Texas Instruments (NYSE:TXN), and this presents a mixed outlook.
Price/earnings to growth is quite attractive for MRVL at 0.57, and gross margin of 58.87% are desirable too. Price to sales is a bit high though at 2.06, and quarterly revenue growth for MRVL is -6.20%. Additionally, MRVL is down $1.064 billion cash for the 3 months of 2011 reported so far, but much of this can be attributed to an aggressive stock repurchase program.
Level 3 Communications, Inc. (NASDAQ:LVLT) – Level 3 Communications has fallen quite a bit in the past week. Though this can mostly be attributed to a poor economy, which means the stock should also rebound nicely as economic indicators improve.
While many investors may be looking for more defensive stocks in this time of uncertainty, Level 3 is fundamentally sound. Key points are the company’s strong performance in core network services as well as good revenue and EBITDA.
Another good Seeking Alpha article about the stock can be found here, and this one pays special attention to the company’s acquisition of Global Crossing (NASDAQ:GLBC). CFO Sunit Patel has also made some confident remarks, but we are not completely convinced. The company’s trailing-twelve-month net income of -$601 million is worrisome. This has helped push price to sales ratio to a rock bottom 0.83, but safer communication companies may be a better choice.
While AT&T is a much different play altogether with its $165.87 billion market cap, T stock may offer a wiser risk/reward profile at this point in time. Note that LVLT’s cash flows are about neutral now with the company down $32 million in the first half of 2011.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.