Stocks Trading for Less Than David Einhorn and Prem Watsa Paid for Them
David Einhorn initially invested in Marvell Tech Group, a semiconductor company, in the third quarter of 2011. He bought 16,640,000 shares at an average price of $14. Then, he added more shares in the next two quarters and owned a total of 18,372,247 at March 31, 2012, making the holding 5.2% of his portfolio and his fifth-largest holding.
Marvell temporarily went above Einhorn’s highest average purchase price of $15.63 in the first quarter, but dropped to open Tuesday at $11.98 per share.
Einhorn is particularly interested in the tech sector recently. Apple Inc. (AAPL) and Seagate Technologies (STX), a hard disk drive company, are his top two holdings, and Dell (DELL) is his tenth largest.
The price of Marvell continued to slip when the company announced its financial results. In three months ended April 28, 2012, Marvell’s net revenue dipped 7 percent from the prior-year quarter as storage sales had not recovered from floods in Thailand in October 2011, which affected most of the industry.
There was improvement though, as revenue increased sequentially, aided by demand for its products in the TD phone market in China. By the second half of the year, the company expects storage end-market revenues to recover to pre-flood levels.
"Our results in the first quarter were better than anticipated driven in part by our TD smartphone products, which grew about 25% sequentially and increased deployment of our 500 gigabyte per platter mobile storage solutions to all the hard disk drive manufacturers," said Dr. Sehat Sutardja, Marvell's chairman and CEO, in a statement.
To drive future growth, the company has a pipeline of products for solid-state drive controllers, digital entertainment, cloud computing and smart energy.
Marvell’s balance sheet shows $2.6 billion in cash, $162 million in long-term liabilities and no long-term debt. It has produced positive free cash flow for the last ten years and initiated its first quarterly dividend of 6 cents in May, 2012.
Prem Watsa, famed investor at Fairfax Financial Holdings (FAIRX), ventured into the troubled cell phone maker Research In Motion (RIMM) in the third quarter of 2010, when the stock traded at an average price of $50 a share. Since then, he has amassed 26,050,200 shares as the stock has plunged to an average of $15 a share in the first quarter of 2012.
There has been little relief for RIMM shares as the stock continued its long decline by sliding another 26% year to date. At $10.52 on Tuesday, investors can purchase this stock for 60% less than the average price Watsa paid for it.
Watsa typically looks for companies he believes are set to perform well over the long term. RIMM is his top holding, followed by Johnson & Johnson (JNJ) and Level 3 Communications (LVLT), whose stock due to problems in the business at one point plunged to $1 around 2008, though, similar to RIMM so far, it avoided bankruptcy.
RIMM, the maker of the once-popular Blackberry smartphone device, saw its revenue drop from $20 billion to $18.4 billion from 2011 to 2012, after nine straight quarters of astronomical growth. Competition in the smartphone and tablet market has moved at a quicker pace than RIMM’s innovation, leaving it struggling to recapture handset market share, which dropped from 42 percent in December 2009 to 12.3 percent in March 2012, according to comScore.
Prem Watsa, RIMM’s third-largest investor, joined the board in January 2012 in an effort to stanch the bloodletting, but he has said that a turnaround would occur on a long-term timetable.
“Is it going to turn around in three months, six months, nine months? No. But if you’re looking four, five years -- we make investments over four, five years. Here’s a company with $2.1 billion of cash and no debt,” Watsa said at Fairfax’s annual meeting in April, according to Bloomberg.
Though the future is uncertain, the company is still far from bankrupt. It announced in May that it is will increase its cash position from $2.1 billion in the first quarter, and that its subscriber base grew in the quarter to approximately 78 million. The growth was mainly in international markets, helping offset the more challenging market in the U.S.
RIMM also aims to release its new Blackberry 10 operating system in the latter half of 2012, with updates that will make it more competitive with other devices. Two of the new device’s standout features will be an adaptive touch-screen keyboard and a camera that captures multiple frames nearly instantaneously for easier editing, though it will also have a version with a standard keyboard for those who use Blackberry because they do not want to switch to the virtual keyboard of Apple (AAPL) and Android.
For more stocks trading below the prices at which Gurus purchased them, try GuruFocus’ Guru Bargains. Also, see the other stocks in Prem Watsa’s portfolio here and in David Einhorn’s portfolio here.