If you're an investor looking at semiconductor stocks, you might have come across Marvell (MRVL 1.72%) and Cypress Semiconductor (CY) in your research. Of the two, Marvell commands a larger market cap at about $11.1 billion, compared with Cypress' $4.81 billion. While Marvell is more than twice as valuable as Cypress, they're both close enough in market value that investors considering one could reasonably consider the other as well.
For those investors, I'd like to compare these two companies across a number of relevant vectors and determine which one is the better buy. Let's get started.
Image source: Getty Images.
Growth prospects
Many investors are attracted to tech stocks for their growth potential. While some semiconductor stocks might also be attractive to more income-oriented investors, the companies that usually come to mind tend to be larger ones with less room to grow. When looking at companies the size of either Marvell or Cypress, growth prospects, at least in my mind, tend to matter more because there's more room for smaller companies to eventually grow into larger ones.
Marvell has a number of growth opportunities ahead of it. At its investor day, the company said its total addressable market (TAM) during calendar year 2018 was good for about $18 billion. That TAM, the company said, is expected to grow to $23.5 billion by calendar year 2021.
Marvell doesn't operate in a vacuum, and other companies are going after that large TAM. But the fact that the company has relatively small share of a large and growing TAM is encouraging. Moreover, analysts expect Marvell to see its revenue rise 21.7% in 2019 to $2.93 billion, followed by another 16% rise in 2020 to $3.4 billion.
Cypress is, at least in my view, less exciting. The company's revenue comes from three major product lines: microcontroller units (MCUs), memory, and connectivity. These segments made up 33%, 39%, and 28% of the company's revenue last quarter. The company serves four end markets: automotive, industrial, enterprise, and consumer, which made up 31%, 20%, 17%, and 32% of its revenue last quarter, respectively.
The company says that over the long term it expects the connectivity market to grow between 16% and 18%, MCUs and programmable systems on a chip to grow between 5% and 7%, and memory to decline between 2% and 5%. Blended together, the company says these markets will grow between 7% and 9% -- respectable, but not earth-shattering.
What concerns me, though, is that despite this apparently sanguine long-term market outlook, analysts currently expect the company to grow by 6.5% in 2018, followed by a 5.5% revenue decline in 2019. Cypress did just divest its NAND flash business to a joint venture in which it has only a minority stake, which naturally makes the year-over-year comparison between 2018 and 2019 look worse than it really is. Nevertheless, even adjusting for that, Cypress' growth, at least in the near term, doesn't look as impressive as what Marvell is set to deliver.
Marvell's nearer-term growth prospects look better than Cypress' do. And frankly, I just like Marvell's end markets, in aggregate, more than I do Cypress'. I give Marvell the win on the growth front.
Dividends
If dividend growth matters a lot to you, then steer clear of both of these stocks. Marvell has paid the same $0.06-per-share quarterly dividend for 27 quarters and has never raised its payout. Cypress isn't much better; it initiated a $0.09-per-share dividend back in 2011 and raised that dividend in March 2012 to $0.11. It's continued to pay that same amount ever since.
CY Dividend data by YCharts
I have to give Cypress the win here, since the company's dividend yield of 3.41% is higher than Marvell's lower 1.45%. But I wouldn't trust either one, at least right now, to give shareholders consistent dividend raises.
Value
As of this writing, Marvell trades at around 13.5 times analyst earnings per share (EPS) estimates for 2019 and 11.64 times what those analysts expect the company to turn in during 2020. Cypress, on the other hand, currently trades at around 10 times analyst projections for its 2019 EPS and 11.26 times analysts' estimates for 2020.
On just that basis alone, Cypress is the "cheaper" stock. But in this case, I think the saying "price is what you pay, value is what you get" rings true here. Marvell is a slightly more expensive stock, but in return you get a company that's set to deliver faster growth in the near term and, arguably, participates in more exciting end markets with potentially more room to grow. Marvell wins on this front.
Put simply, if I had spare cash in my brokerage account and I had to choose to buy one of these two stocks, I'd put my order in for Marvell.
