It's a Marvel Marvell Is Even This High

The world's top value investors love it when their best stocks ideas are selling at bargain-basement prices. For those rarified investors, companies offering fire-sale prices become no-brainer buys. So regular investors like you and me would do well to emulate the masters and look at companies offering a "buy one-get one" sale on their stocks.

Semiconductor chip maker Marvell Technology (MRVL +7.74%) has been unable to rise above the decline in the PC industry. Despite offering solid gains in solid state drives for products sold to Western Digital (WDC +9.98%), computers have simply been an anchor that's held it back. Mobile and wireless connectivity haven't been strong, either.

Since there haven't been many forecasts for industry improvement any time soon, you'll still want to do more due diligence to see if this is an opportunity to pick up a quality stock at a serious discount.

Marvell Technology snapshot

Source: FinViz.com.

Let's just make sure there's nothing more seriously wrong with it before you go and plug it into your portfolio.

Hard-driving competitor
Almost half of Marvell's revenue comes from storage controllers used in drives for PCs and notebook computers, with Western Digital accounting for about a quarter of those sales, and both it and Seagate Technology (STX +0.00%) have stressed there's little improvement coming. Analysts at JPMorgan Chase (JPM +0.47%) recently cut their outlook for global PC sales (and Seagate's potential), now expecting just 345.5 million units to move compared to prior estimates of 357.8 million units. Admittedly starting from a smaller base, Marvell has been able to see its SDD business grow despite the challenges of the market and it also says it's gaining share as its larger platter sizes have proved popular.

A disconnect in mobile
It looks to be slipping behind in other areas, too, where its wireless products suffered a setback as a major customer went through an "inventory correction," and its mobile products are tied into China's market, where China Mobile (CHL +0.00%) and China Unicom (CHU +0.00%) are duking it out for a growing crop of 3G users. But just as Research In Motion (RIMM +3.09%) is ready to stage a comeback with the launch of its new BB10 operating system next month, the handset maker has opted to go with Qualcomm (QCOM 0.02%) chips for its phones, so Marvell won't join in any rebirth there.

The investment story for Marvell is one of patience. The global economy has taxed the chip maker's performance and the stock has been on a slow, steady decline. Yet within that fall are seeds of hope.

Trimming back the hedges
Hedge fund operator David Einhorn has said he sees significant value in beaten-down Marvell stock (though it's been beaten down a lot more since he first bought in), but whether he still considers it a value or now a value trap is unknown. Marvell's networking business seems securely grounded at the moment, too. If China comes through as expected and the mobile and wireless markets at least stabilize -- not to mention the PC business -- the chip maker offers a good value.

Sure, there are a lot of caveats there, and any recovery is most certainly going to require a global economic rebound. Yet Europe can't get its financial house in order and Marvell's core business is stuck in a mire.

With $2 billion in cash and equivalents, the chip maker's not stuck for money and it gives it lots of flexibility to meet the challenges it faces. And with its enterprise value trading at less than five times its free cash flow (admittedly, that's also been declining), it seems like a chance to scoop up some severely discounted shares.