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Are These 2 Stocks Wasting Your Money?

Rich Duprey
June 6, 2012

Stock buybacks are generally considered a bullish signal on Wall Street. They return capital to shareholders while declaring management's belief that its own cheap shares are its best return on investment. As long as profits remain consistent, share repurchases can even increase earnings per share by dividing the same amount of earnings among a smaller pool of shares outstanding.

But don't forget: A company isn't obligated to repurchase shares just because it announced its intention to do so. So don't use the announcement alone as a reason to buy; rather use it as a launching pad for additional research.

More, more, more!
Despite beating analyst expectations last quarter, semiconductor chip maker Marvell Technology (Nasdaq: MRVL  ) continues to see its shares beaten down. With growing cellphone usage in China and better prospects for the hard-drive market now that Thailand has dried out from the flooding that submerged the industry, even analysts are predicting better days ahead.

Yet the markets aren't so sure. Shares have fallen about 15% in the last month and are down nearly 30% from their highs. Could it be that the profit picture that's weighing down Western Digital (NYSE: WDC  ) and Seagate Technology (NYSE: STX  ) is still impacting Marvell? Analysts don't see them commanding the same margins they did immediately following the floods -- and with the 2012 Pacific typhoon season just ramping up, perhaps there are some concerns of history repeating itself.

If that's the case, then Marvell will be getting a good deal for the $500 million it added to its stock repurchase plan. Its mobile and wireless division grew 14% last quarter, and analysts see both China Mobile and China Unicom duking it out for a growing crop of 3G users. Its storage unit was up 20%.

Certainly the CAPS community sees the potential for Marvell to rebound smartly, as 95% of the 1,400-plus members who have rated it expect it to outperform the market indexes. Add Marvell's stock to your watchlist and let us know in the comments section below or on the Marvell Technology CAPS page if it can continue to chip away at the doubts and ascend to new heights.

Delivering the goods
A confluence of trends will push drug distribution specialist McKesson (NYSE: MCK