In this article I look at five stocks in the rebounding technology and basic materials sectors. I will examine fundamentals and upside/downside catalysts. I will match them to a close competitor and make my recommendation.
Marvell Technology Group (MRVL) is a mid cap in the technology sector currently trading at around $16 per share. With a market cap of more than $9 billion, it is a larger player in the semiconductor-integrated circuits industry than mere name recognition suggests.
Contender STMicroelectronics N.V. (STM) is also a mid cap in the technology sector trading at about $7 per share with a market cap of just over $6 billion. It is in the broad line semiconductor industry.
Financial strength and soundness tend to favor Marvell. The balance sheet shows it is sitting on about $2.4 billion in cash and cash equivalents. The truly persuasive argument in favor of Marvell comes in the form of a mid-December board announcement approving a share buy back totaling $500 million. Actions speak loudly, and Marvel's investment in its own stock speaks volumes. I recommend adding Marvell to your portfolio.
|PEG Ratio (5 yr expected)||1.16||1.24|
|Return on equity (TTM)||21.17||1.88|
|Qtrly Revenue Growth (yoy):||-0.90||-22.70|
|Qtrly Earnings Growth (yoy):||-23.70||N/A|
|Total Debt/Equity (mrq):||-0-||19.59|
|Current Ratio (mrq):||4.91||2.17|
|Trailing Annual Dividend Yield||N/A||1.00|
Linn Energy, LLC (LINE), in the basic materials sector, conducts its business in the independent oil and gas industry. The share price is close to $37 and market capitalization exceeds $9 billion.
Adversary Pioneer Natural Resources Company (PXD) trades at about $106 per share and has a market capitalization of just over $12 billion. It is also in the basic materials sector operating in the independent oil and gas industry.
I like both companies. Both have substantial domestic proven reserves, which is a strategic advantage in view of the Iranian threat to oil flowing from the gulf. The fact that Linn is well hedged, has zero debt and more than double Pioneer's cash and cash equivalents puts Linn over the top for me. The generous dividend yield does not hurt either.
|PEG Ratio (5 yr expected)||3.99||2.75|
|Return on equity||11.94||12.80|
|Qtrly Revenue Growth (yoy):||32.80||42.80|
|Qtrly Earnings Growth (yoy):||20,117.90||213.70|
|Total Debt/Equity (mrq):||84.05||49.79|
|Current Ratio (mrq):||1.45||1.42|
|Trailing Annual Dividend Yield||7.50||0.10|
Netflix, Inc. (NFLX) enjoys a market cap of about $7 billion and trades at around $129 per share. It is in the services sector and a player in the music and video store industry.
Nemesis Amazon.com, Inc. (AMZN) trades at $183 per share. It has a market cap exceeding $83 billion. Amazon is in the service sector and operates in the catalog and mail order house industry. Netflix services have considerable overlap with those of Amazon and they compete head-to-head.
As a value investor, I could never bring myself to pay almost 134 times earnings for a stock. This eliminates Amazon for me. Netflix does not excite me either. High price/earnings ratio aside, I don't like the debt/equity ratio and I don't like the business model. The focus on streaming video has too much downside risk because Netflix can't control long-term product costs. Customers vote with their feet when it comes to price increases and they are fleeing in droves. Read more here. I recommend considering both.
|PEG Ratio (5 yr expected)||-30.15||4.89|
|Return on equity||49.36||8.63|
|Qtrly Revenue Growth (yoy):||46.90||34.60|
|Qtrly Earnings Growth (yoy):||-13.50||-57.50|
|Total Debt/Equity (mrq):||61.70||23.33|
|Current Ratio (mrq):||1.50||1.17|
|Trailing Annual Dividend Yield||N/A||N/A|
NVIDIA Corporation (NVDA) is in the technology sector and conducts business in the specialized semiconductor industry. It is trading at about $16 per share. NVIDIA has a market cap approaching $10 billion.
Competing Applied Materials, Inc. (AMAT) is trading at about $13 per share. It is in the technology sector and earns its living in the semiconductor equipment and materials industry. It has a market capitalization of around $16 billion.
The semiconductor industry is enjoying something of a rebound. As the table shows, NVIDIA at 15 times earnings is about twice the cost of AMAT. However, NVIDIA's financial strength, revenue and earnings growth and superior price/earnings growth ratio has me leaning its way. Analysts are all over the map on NVIDIA but given the company's solid position in the mobile phone and tablet market, I believe NVIDIA to be a good bet.
|PEG Ratio (5 yr expected)||1.17||1.91|
|Return on equity||18.53||23.58|
|Qtrly Revenue Growth (yoy):||26.30||-24.50|
|Qtrly Earnings Growth (yoy):||110.10||-2.80|
|Total Debt/Equity (mrq):||0.55||22.13|
|Current Ratio (mrq):||3.95||3.71|
|Trailing Annual Dividend Yield||N/A||2.50|
Metabolix, Inc. (MBLX) is in the specialty chemicals industry and more broadly, in the basic materials sector. It trades at just under $3 per share and has a market cap slightly less than $100 million.
Rival BASF SE ADS (BASFY.PK), among other pursuits, is a player in the specialty chemicals industry. BASF stock is trading at about $81 per share. The company has a market capitalization of almost $74 billion.
Metabolix shares tumbled recently on the news of a dissolved alliance with Archer Daniels Midland Company (ADM). I would stay on the sidelines with this one as it has some re-aligning and restructuring to focus on for now. That leaves BASF by default. BASF is not without merit. It is priced well, has a great return on equity, a good price to book and a very decent dividend yield. Moreover, it does not have to be concerned about Metabolix for the near term.
|PEG Ratio (5 yr expected)||N/A||3.31|
|Return on equity||-97.03||30.25|
|Qtrly Revenue Growth (yoy):||919.60||11.60|
|Qtrly Earnings Growth (yoy):||N/A||-4.30|
|Total Debt/Equity (mrq):||N/A||54.86|
|Current Ratio (mrq):||10.63||1.77|
|Trailing Annual Dividend Yield||N/A||3.80|
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.