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Contrarian Fuel Lights Up Marvell
03/07/2014 8:00 am EST
A mass exodus of bears could propel this stock higher, says analyst Andrea Kramer of Schaeffer Investment Research, regarding her Option Idea of the Week. Here, she assesses several contrarian sentiment and technical metrics.
Semiconductor maker Marvell Technology Group Ltd. (MRVL) stepped into the earnings confessional after the close on February 20; the company blew past analysts' expectations, reporting earnings that more than doubled on a year-over-year basis.
The company attributed the solid quarter to strong demand from storage and networking businesses, and offered upbeat revenue guidance for the first quarter. "In the first quarter, we are expecting some revenue and unit growth for our 4G LTE mobile platform from multiple customers," said CEO Sehat Sutardja.
In the subsequent session, the shares of MRVL notched a two-year acme of $16.62, but ultimately finished the day lower. In fact, the equity pulled back to its ascending 40-day moving average, and has since bounced from this trendline—a move that's historically preceded strength in the shares.
In the seven other times MRVL has tested this trendline, the shares were positive 71% of the time five days later, and 86% of the time three weeks after the fact.
What's more, MRVL averages a 21-day return of 4.9% after touching its 40-day moving average, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Against this backdrop, now looks like an opportune time to gamble on continued upside for MRVL.
Despite Marvell's fundamental and technical prowess, the bullish bandwagon is far from crowded. Even after a post-earnings onslaught of upward price-target adjustments, the consensus 12-month price target for MRVL sits at $16.21, representing expected upside of just 5% from the stock's current perch.
In addition, more than half of the analysts following MRVL maintain "hold" or worse opinions. A flood of upgrades and/or additional price-target boosts could help usher the security even higher.
Elsewhere, the stock's Schaeffer's put/call open interest ratio sits at 1.57, indicating that puts handily outnumber calls among options with a shelf life of three months or less.
Even more telling, perhaps, this ratio stands higher than 91% of all other readings of the past year, implying that short-term options players are more put-heavy than usual right now.
An unwinding of bearish bets in the wake of MRVL's uptrend could add contrarian fuel to the equity's fire.
Options speculators interested in wagering on a continued rally for Marvell Technology might consider buying the in-the-money August 12 call, which was last asked at $3.80.
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