Tuesday, November 07, 2023
Wall Street is singing the praises of big oil...
And not just because of rising gas prices, a boon to the bottom line of oil companies.
Instead, Wall Street’s excitement stems from two recent mergers. Chevron (CVX) acquired Hess (HES) for $53 billion, and Exxon Mobil (XOM) acquired Pioneer Natural Resources (PXD) for $60 billion.
The big banks are working hard to convince investors that these deals will increase efficiencies and profit margins.
But I’m not convinced. In fact, I think these deals are destined to fail.
Let me explain why...
Chances are, neither merger will reward shareholders to the extent the acquiring firms are claiming. And lest you think I’m being a grouch, according to data compiled by the Harvard Business Review, as many as 70% of all deals fail to live up to expectations.
Why? Simple: The buyers don’t fully understand the workforce and corporate culture of the target firms.
I’m bringing this your attention because I want to stress the importance of not letting flashy deals with high-dollar price tags sway your investment decisions.
Instead, hunt down companies or individuals with impressive track records in Mergers & Acquisitions (“M&A”). Like this guy:
This is Ford Tamer.
Tamer is a senior operating partner at Francisco Partners, one of the largest private-equity firms in the world.
He joined the company last year, following an extensive history of executive leadership. In fact, Tamer has a track record of adding shareholder value wherever he’s been.
Starting in 2005, he grew sales of Broadcom’s Infrastructure Networking Group five-fold, reaching $1.2 billion in just five years.
Then there was his role as CEO of Inphi, a semiconductor-manufacturing company. When Tamer joined the company in 2012, it had a market cap of less than $1 billion. But less than a decade later, Inphi’s market cap reached $9 billion — impressive.
Armed with more than 750 patents, Inphi serves cloud computing and telecommunications-service providers. Its sales have gone from $20 million in 2012 to around $350 million annually today.
That rise is due to the company’s target sectors, which include Artificial Intelligence (“AI”), 5G wireless broadband, and the internet of things (“IoT”).
Even though Tamer’s days as CEO of this company are over, I would have encouraged anyone to scoop up shares of Inphi. There’s just one problem: as of 2021, Inphi is no longer publicly-traded.
But that’s alright. Because we can still invest in the company that acquired Inphi…
Based in Santa Clara, California, Marvell Technology (Nasdaq: MRVL) develops and produces semiconductors.
It has a number of “firsts” under its belt. For example, the company provided the Wi-Fi chip for the original iPhone. And the first two generations of Google’s Chromecast streaming devices ran on Marvell technology.
If you’ve made the leap to a phone with 5G capabilities, chances are, you’re using one with Marvell’s chips. Huawei, Nokia, Ericsson, ZTE, and Samsung all use Marvell chips in their 5G towers and other 5G infrastructure. So does Microsoft (MSFT) for its Azure cloud service.
By acquiring Inphi, Marvell added the company’s high-speed optical data center for use in cloud servers and 5G infrastructure, thus creating a $47 billion U.S. semiconductor powerhouse.
But make no mistake: This wasn’t Marvell’s first acquisition...
Since getting its start in 1995, Marvell has become a major force through a series of deals.
Sure, buying Inphi was crucial. It enabled the company to find new clients in hot tech sectors and target high-growth fields.
But in 2018, Marvell paid $6 billion for chip-leader Cavium. Other acquisitions include Innvovium, a maker of chips for infrastructure gear in October 2021, and Avera Semi, a maker of networking chips, in 2019.
I’m impressed with Marvell’s penchant for deal-making. But I also like this company’s role in AI.
In May, the firm said it expects to see sales of AI-optimized processors come in at $400 million this fiscal year. Next year, sales are projected to double.
That’s an encouraging projection. And the company’s current figures round out our investment case.
Over the past three years, earnings per share have grown an average of 43%, according to Investor’s Business Daily. And over the past five years, Marvell’s stock has gained more than 200% — tripling investors’ money.
As long as this company keeps wheeling and dealing, I see no reason these types of gains won’t continue. So don’t miss out.
Cheers and Good Investing,
Chief Investment Officer
Trend Trader Daily