Marvell Technology Inc (MRVL)

[nuggetminer]

<<<<Why is the SOX so underperforming in this mkt??>>>>

I've been wrestling with this question myself. This week, one could say that earnings warnings and analyst downgrades are the culprit.

But the SOX has been underperforming for about the past 3 months.

One partial explanation is that the SOX index is not that representative of the overall semiconductor sector. It is a price-weighted index (like the Dow), which means that the largest weighted components (at about 11% each) are KLA-Tencor and SanDisk. A more representative index is the one underlying the Ishares Semiconductor ETF, symbol IGW. As you can see from the linked chart, IGW has not been underperforming as badly as the SOX:
http://stockcharts.com/h-sc/ui?s=IGW&p=D&b=5&g=0&id=p09180611755

However, IGW is still about 4% beneath its July highs, even though other classically cyclical plays (materials, industrials) are doing extremely well.

Attempting to be open-minded to what the market is saying, one could infer that semis are weak because worldwide consumer purchases of PC's, cell phones, and CE items will be relatively soft this holiday season - - i.e., that the continuing cyclical expansion will be driven by capital spending rather than by the consumer.

While I'm watching for signs of the validity of this scenerio, I'm not buying it yet. Sometimes the market just misprices a group for a period of time. I'm still looking for the Semis to substantially outperform the market into year-end, and I expect MRVL to substantially outperform the group.

The past couple of days I've been buying May 20 Calls in the $1.05 to $1.10 area. You need to go out to May to encompass the next two earnings reports - - even the February options will only include one quarterly earnings report.

By May, MRVL's turnaround and growth will be apparent to everyone, and I wouldn't be surprised to see the stock at around $30.