Written by: Aaron Katsman | August 27, 2007
Aaron Katsman
www.IsraelNewsletter.com
In these volatile market conditions, the last thing a company wants to do is disappoint the Street. So it came as no surprise that when Marvell Technology (MRVL) said its gross margins would be “slightly over” 48% for the current business period, down from 51.3% in the same quarter last year, that the stock got smashed (almost 12% down).
Marvell designs chips used in hard-disk drives, mobile phones, Wi-Fi functional electronics and Internet networking gear. The company has been embroiled in its own options backdating scandal, and has been focused on getting its financial house in order. To me what was most worrisome about this quarter’s numbers, was not just that they cut margin forecast, but that this is the second consecutive quarter that they have done so. Sort of like the Bears working all week with Rex Grossman on the center/qb exchange only to see him fumble again.
But unlike Rex, I really think that Marvell makes for an interesting turnaround story. The company posted better than expected revenues and raised revenue guidance going forward. You may think that they are increasing sales by cutting prices, thus the lower margins; but if this is so, what have they accomplished? I think that the margin problems are a result of productions costs, and they are addressing this by shifting production on some products to Taiwan Semiconductor (TSM), which will cut costs. They are getting to the bottom of the backdating mess, which will allow them to get back and focus 100% on growing the business. In fact, in a bid to expand their consumer electronics business, they made four acquisitions. One of those deals was buying the cell-phone processor line from Intel (INTC). Those processors are used in the Blackberry made by Research In Motion Ltd. (RIMM).
And then there is Apple (AAPL). Marvell is currently supplying the Wi-Fi- chip in the iPhone, and many analysts are predicting that they will grow the Apple relationship, especially for the next-generation video iPod player.
The last 18 months haven’t been kind to the stock, as it has dropped by more than 55%. If they will fix the margin problems, and with increasing sales, and the potential with Apple, it seems that this will be recipe for success over the next 18 months. For investors looking at a turnaround play, Marvell may just turn out Marvelous!
Please see our Disclaimer HERE.
Disclosure: Author has a position in MRVL as of 8/27/07, author holds no other positions in other stocks mentioned.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Written by: Aaron Katsman | August 23, 2007
Aaron Katsman
www.IsraelNewsletter.com
Before we get started, on behalf of the entire Israel Newsletter team, I would like to send out a big Mazel Tov (congratulations) to Zack “Facebook” Miller and his wife Melinda, on the birth of a spankin’ new baby boy born yesterday evening. Both mother and baby are doing well, from what I understand. Just a warning, if Zack gets a little cranky in some of his postings we will just attribute it to his lack of sleep!
Yesterday, Smallcap Investor, had an interesting post on IncrediMail (MAIL) and the big spike up in the stock on Tuesday of 17%. Smallcap Investor spoke with executive vice president Jeff Holzmann and he said that he thinks the stock’s surge can be attributed to the company’s robust earnings reported on August 14. “Because we’re a small company, it takes a while for our stock to get on investors’ radar screens,” said Holzmann. “There’s a bit of a lag effect.”
Huh?
Wouldn’t it be better to say that he knows of no reason for the stock move? From the earnings release through this past Monday the stock actually dropped 20%. Then, the theory goes, a week after earnings, suddenly radar screens started flashing that IncrediMail had good earnings and investors pushed up the price.
Sounds a little far fetched.
I have another possibility. A well-known newsletter (which will remain nameless) blasted an email out over this past weekend titled “The Next Google’s In: Israel” and went on to describe a company that sure sounds like IncrediMail without mentioning it by name.
“Our tiny Tel-Aviv company trades on the Nasdaq at around $7 today, down from $10 after the recent sub-prime panic, but up from $4 about a year ago.
The business model is now advertising-driven as well as subscription-based. Ad revenue is growing 7-fold over last year.
In short, our Israeli company makes your Facebook world more personal, more secure, easier to use and more intuitive.
WILL FACEBOOK BUY OUR TEL-AVIV FLEDGLING?
I’d be surprised if they didn’t, but I’d be just as glad if Facebook’s business drove our $7 stock to $100 and simply gave us that 400% profit we all missed out on in Google.”
Sounds like IncrediMail to me. Even more, it sure sounds like Zack’s post of a few weeks ago vis-a-vis Facebook. In fact Zack’s scoop about potential suitors for IncrediMail was picked up by Reuters, who asked the company and the company actually confirmed that they have been approached by many firms.
Way to go Zack! Congrats on the baby and way to go on the IncrediMail scoop.
Disclosure: Author has no position in MAIL as of 8/23/07.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Written by: Aaron Katsman | August 22, 2007
Aaron Katsman
www.IsraelNewsletter.com
It’s never fun to see a stock that you hold find it’s way onto the highest percentage losers list. You know that when it happens it’s going to be a long day. Yesterday had started out as a nice day, I even bought lunch for the office (there is a first for everything!), and then Retalix (RTLX) came out with earnings. Bang! Down 15.5%. Both top and bottom line were basically in-line with guidance. So where was the problem? Investors were clearly spooked with a drop in margins. Gross Margin for the period was 53%, and adjusted gross margin (Non-GAAP) was 55.0%, compared to gross margin of 58.1% and adjusted gross margin (Non-GAAP) of 60.5% in the second quarter of 2006. It’s generally not the greatest news to hear of sliding margins, but in the case of Retalix not all is lost.
Both total revenues and net loss, improved dramtically over same period in ‘06. The company continues to sign new deals, and seems to be executing their business model nicely. The question remains, was yesterday’s selloff justified, or was it another case of the market overreacting?
“The results of the second quarter were in line with our expectations,” said Barry Shaked, president and CEO of Retalix. “As we predicted, in the first two quarters of 2007 our revenues were just above 45 percent of our total guidance for the year. We believe that we are on track to achieve our stated top line goal for the year. We have a pipeline of prospective customers and we are working on getting these new license contracts signed by the end of this year in order to also achieve our bottom line goal. At the same time, we are taking steps to improve our cost structure and minimize operating costs. We have made it a top priority to improve our gross margin and our operating margin.”
It seems to me that the company is taking steps to correct the declining margin issue, and otherwise, the business is doing well with a nice pipeline. With the stock now trading under $16, this looks like a great entry point for investors who are looking for an interesting company, with strong growth.
Please see our Disclaimer HERE.
Disclosure: Author has a position in RTLX as of 8/22/07.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
Written by: Aaron Katsman | August 21, 2007
Aaron Katsman
www.IsraelNewsletter.com
I just got an email from a friend of mine, and as a way of showing that nobody listens to me, he asked the famous riddle. If a tree falls in a forest with no one to hear it, then does it make a sound? While I usually try and stick to posting about Israeli stocks, I couldn’t resist taking a shot at the Bank of America Securities analyst downgrade of the homebuilders. This seems like one of those things that’s just completely irrelevant.
Hovnanian Enterprises(HOV) was among the stocks mentioned in the report that was cut to neutral from a buy rating. That initial buy rating was issued on the 1st of Feb. ‘07. At that time the stock was trading in the mid 30’s. The broker said it senses that cancellations jumped across the industry in recent weeks as lenders pulled commitments from buyers already in backlog and new buyers failed to qualify. Where has this analyst been hanging out for the last 6 months? They waited for the stock to drop more than 60%, and only then do they issue a downgrade. They believe that the homebuilding business has been an attractive space over the last half year, and only now do they sense some trouble? Puzzling isn’t it? And Barron’s has an issue with Cramer? At least he is in the ballpark.
With such a “gutsy” call, I think that there will be an interesting play on the homebuilders in about 3 months. If there will be any short-term move to the upside in this sector, I am sure it will be limited because there is the tax-loss selling cloud that looms over this sector. But as we approach year end, and everyone has cleaned out their portfolios by dumping losers, watch for the homebuilders to regain strength, and I wouldn’t be at all surprised to see companies like Honvanian or Toll Brothers(TOL) become big gainers in ‘08.
Please see our Disclaimer HERE.
Disclosure: Author has no position in either HOV or TOL as of 8/21/07.
Like what you see? Sign up to receive daily updates from IsraelNewsletter here
Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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