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A Bruised Chipmaker Ready to Rebound?

MLNX dropped 20% after earnings, but you shouldn't dismiss it


Chipmaker Mellanox Technologies (NASDAQ:MLNX) took a 20% hit when it missed Q3 earnings expectations. I’ve heard the argument that MLNX seems like a solid company with great products and an advantage over competitors Broadcom (NASDAQ:BRCM), Emulex (NYSE:ELX) and QLogic (NASDAQ:QLGC). So, let’s take a second look: Is this a good buying opportunity for MLNX?

Mellanox collapsed recently after reporting Q3 earnings that were not as robust as investors had anticipated. Up to that point, the Israel-based maker of semiconductor technology for networking applications had been one of the strongest stocks of the year, rising by almost 4x. Generally, when a momentum stock breaks down badly, it suffers bruises and broken bones that keep shares subdued for months. However, occasionally even a really bad thrashing brings new buyers in.

In this case, MLNX continued lower for only one week before gaining traction again, as you can see in the first chart, which shows the three-year view with weekly bars.

The second chart shows that it has exceeded its first-day spill and appears on track to fill the gap at $95.

I’m not ready to pull the trigger yet, but I am going to put MLNX on my radar. We’re seeing improvements in chain-store sales, overall consumer spending and in consumer confidence. Plus, corporate profits are subdued but not nearly as bad as feared, and manufacturing is picking up. So, names like MLNX could see a boost in next quarter’s numbers.

Jon Markman operates the investment firm Markman Capital Insight. He also writes a daily swing trading newsletter, Trader’s Advantage.

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