Friday, October 19, 2012

Operation Barn Door Again?

A common pattern of behavior by Wall Street analysts is to recommend a stock for some time as it slides in price, until a negative company announcement causes them to abandon the stock after it drops sharply on the announcement.

Marvell Technology is the latest example.  The stock is down 12% today on the announcement of an earnings shortfall and the resignation of the CFO (which is usually a bad omen for a company).  The stock is now 44% this year.  Until recently, a majority of analysts who cover the company recommended buying the stock.  Today, there is a wave of ratings downgrades by stock analysts.  

At its current price, cash on Marvell's balance sheet equals 47% of the stock price, which would seem to make the company, now with a stock market value of $4.4 billion, a cheap takeover by another company.

I have long said that I would never want to work as a technology stock analyst, as the risk of rapid--even immediate--obsolescence of a company's products make it an extremely difficult job to analyze the companies and make recommendations on the stocks.  But another wave of downgrades by analysts after a stock has already fallen sharply is frustrating to observe.

Steve Lehman

MRVL:  $7.80

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