Diary of a Financier

Quant screen: Core Value & Low EV (February 2014)

In Trading Desk on Tue 18 Feb 2014 at 17:01

My quantitative screens scored the following names as the highest ranking outputs for February…

Low Enterprise Value (2/10):

  1. HCI Group Inc ($HCI)- bought 10/18/13
  2. Banco Macro SA ($BMA)- bought 10/18/13
  3. Myriad Genetics ($MYGN)- new
  4. Argan Inc ($AGX)- watch
  5. Magellan Health Services ($MGLN)
  6. Qlogic ($QLGC)- watch, new
  7. Raymond James Financial ($RJF)- watch
  8. Marvell Technology ($MRVL)- watch, new
  9. Advanced Energy Industries ($AEIS)- watch, new
  10. Kimball International ($KBALB)- watch, new
  11. FXCM Inc ($FXCM)- bought 6/21/13
  12. AVX Corp ($AVX)- watch, new

Low EV 2014.02.10

Core Value (2/13):

  1. Sanderson Farms ($SAFM)- watch, new
  2. Magna International ($MGA)
  3. Magellan Health Services ($MGLN)
  4. Foot Locker ($FL)- bought 4/30/13
  5. Lear Corp ($LEA)
  6. Tyson Foods ($TSN)- watch, new
  7. Standard Motor Products ($SMP)- previously

Core Value 2014.02.13


Marvell Technology ($MRVL)

We opened a half position in MRVL, starting small since they’re reporting Q4 & FY13 earnings on 2/20 (after hours).

MRVL supplies chips for popular electronics devices like XBox One ($MSFT), Playstation 4 ($SNE), and Western Digital ($WDC) computers & notebooks.  Most people think $QCOM is the industry leader in China, but MRVL is actually the preferred chip supplier for Chinese 4G mobile phones.

In fact, upon ramping-up production in 4q13, MRVL met massive demand for China’s 4G mobile phone components. They were so overwhelmed with orders that they were undersupplied and still working-off the the excess demand.MRVL chart & fundamentals 2014.02.20

Given its inclusion on my Low EV screen, MRVL is clearly deep value from a fundamental standpoint.  Their strong balance sheet and cash position (26% net cash/share) have helped them repurchase ~15% of outstanding shares since 2012, dedicating almost 100% of free cash flow to shareholders.  Further, insiders own 22%, and David Einhorn’s Greenlight Capital owns >9%.

Marvell is currently grappling with a Carnegie Mellon patent infringement litigation.  In CMU’s local Pittsburgh court, a jury ruled against MRVL with a recommendation of $1.17B in damages.  MRVL’s appeal was recently rejected, so it’s awaiting the judge’s final verdict.  Worst case, his ruling will call for $3.5B in damages–3x the jury’s recommendation if the judge considers this “willful infringement.”  Base case is for the aforementioned $1.17B. In either case MRVL will have to reserve cash for litigation expenses once the penalty is handed-down, then appeal the case to a more favorable jurisdiction.  MRVL itself expects to garner a more favorable ruling in a higher court, since Pittsburgh’s court is biased toward local CMU. So, these proceedings will likely last through 2014.

A $1.17B settlement means a 5% hit to FY14 EPS (-6c), which base case is priced-in to the stock. Some Street analysts actually think MRVL will gap-up on a resolution, which would remove the distraction of this legal process.

MRVL has plenty of cash ($1.8B mrq) to reserve for this litigation expense, but they also have $1B surety bond arranged plus assets to secure a debt offering.  Management has indicated that it would prefer to finance the litigation expenses than idle the company’s cash, which says a lot:  first, it means their cost of capital is low enough that there’s an opportunity cost to not investing in the business; second, management has said it would rather maintain its share buyback program or (at worst) increase its dividend.


Here’s the performance to date (total return) of unrealized positions still open from prior screens; buys executed throughout the year, as specified in my trade reconciliations:

$ARII +49.79%
$BMA -1.90
$FL +12.41
$FXCM +2.33
$HCI +6.95
$JOSB +24.97
$NDZ +12.42
$VMI +10.57

Here are the total returns of positions closed recently:

$GCO +19.04%
$IBKR +39.97
$SMP +10.80

Here’s a followup on the last Core Value screen 12/20:

Passive +5.47% (alpha= +3.99)
Active +4.80% (alpha= +3.33)
SPX +1.48%

Core Value 2013.12.20_update

Here’s a followup on the last Low Enterprise Value screen 11/11–my first ever losing output:

Active & Passive -0.39% (alpha= -4.31)
SPX +3.92%

Low EV 2013.11.11_update


  1. $MRVL 4q13 earnings:
    – 4q13 EPS (29c v 25) & Rev (931mm v 901) beat big
    – Q1 guidance exceeds consensus (Rev 890mm v 837)
    – shs -3% at open

    Q4 report: http://seekingalpha.com/news/1582193-marvell-technology-group-ltd-beats-by-0_04-beats-on-revenue

    Q1 & FY14 guidance: http://seekingalpha.com/news/1583153-tech-earnings-guidance-aruba-marvell-maxwell-qlik


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