4 Overlooked Tech Stocks That Can Make You Money This Quarter
Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Today, personal computers are passé and computing components are considered mundane. Printed circuit board companies may not be in the limelight, but many of these firms offer investors the opportunity to buy growth at reasonable prices or buy steady income at attractive valuations.
Case Study: iPhone 5 Hiccup and Supplier Woes
Supply constraints for the newest member of its smartphone family may hurt Jabil Circuit (NYSE: JBL) and delay payback from its ambitious capital expenditures. 70% of Jabil's capex for the year was spent to accommodate production of iPhone 5 aluminum casings. This $337 million investment helped the manufacturer make components which could readily meet the high standards Apple (NASDAQ: AAPL) demands for every component.
Although Jabil's revenue has gone up by 2%, the true sign that Apple is demanding a much higher quality casing for the iPhone 5 is that the company's net income fell by 28%. Most of the money that Jabil has to spend on the iPhone 5's casing may be in the mass quantity and speed of delivery that Apple needs to keep up with demand for the new phone. The department overseeing the production of the Apple project is currently producing 45% of the products sold by Jabil.
Supplying Apple has led to sales growth, but Jabil did see its net income fall from $0.52 a share last year to just $0.39 a share last quarter. In the quarter ending in November, Jabil is estimating that its earnings per share will be between $0.51 and $0.62 per share, short of the $0.67 per share that was projected before expenses were ramped up for the iPhone 5 project.
Finding Value among Printed Circuit Board Companies
Consider the following financial values for Jabil and its peers:
Value investors should be salivating at some of the attractive valuations on this list. What's more, the industry does not tout excessive debt, and many of the firms are seeing positive sales trends. In the context of value investing in other industries, these certainly aren’t hard times! Let’s examine each of these stocks to determine which qualify as the best investments.
Consider Celestica (NYSE: CLS). Currently the stock trades at roughly $7 per share. The shareholders of this printed circuit boards small-cap stock have sustained a 2.6% decrease in price over the past year, which might psychologically validate investors who missed the broader stock market rally and are looking to join the party.
Clearly, this firm trades at cheap valuations. Both in absolute terms and when compared to the 1.29 price-to-sales ratio of the S&P 500, the 0.19 price-to-sales ratio of this stock is very attractive. Celestica’s shares are valued at a compelling 8.4 price-to-earnings ratio, a value which is significantly lower than the 14.1 average of the S&P 500. The 1.02 price-to-book multiple of this stock is much cheaper than the 2.05 S&P 500 average.
Better yet, investors should consider this number an understatement, because the price-to-book ratio fails to account for internally-developed intellectual property. If the economic value of these assets were even partially recorded on the balance sheet, the firm's price-to-book ratio would be lower. The firm is also a cash cow, with a price-to-free cash flow ratio of 5.4.
Investors can also find value in Flextronics (NASDAQ: FLEX) by buying shares at $6. Like Celestia, this stock sports a low price-to-sales ratio of 0.14 and a compelling 8.22 price-to-earnings ratio. Its price-to-book multiple is attractive, though more expensive than Celestia's, at 1.78. Bear in mind that this is clearly cheap relative to the broader market, but cannot be compared between firms with significant off-balance sheet assets.
At roughly $19 per share, Jabil Circuit is also a value candidate. When compared to the 1.29 price-to-sales ratio of the S&P 500, the 0.23 ratio of this stock is very attractive. Jabil shares are valued at a compelling 9.36 price-to-earnings ratio, a value which is significantly lower than the 14.1 average of the S&P 500. Shares trade at a 1.91 price-to-book ratio, close to the S&P 500 average of 2.05.
The shareholders of this Apple supplier have endured a -3.8% decline in price over the past year. This is amazing considering how Apple shares have almost doubled in the same timeframe. What's more, Jabil pays a 1.71% dividend yield, with dividend payments that are likely steady thanks to a low 0.16 payout ratio. The firm's reasonable 0.71 debt-to-equity ratio demonstrates that it’s not overleveraged.
In most other industries, Plexus (NASDAQ: PLXS) $30 per share price tag would be an attractive growth-at-reasonable-price opportunity. When compared to the 1.29 price-to-sales ratio of the S&P 500, the 0.47 ratio of this stock looks great. However, relative to its peers, this price multiple is nothing exciting. Plexus’ shares are trading at a fair 13.52 price-to-earnings ratio, in line with the S&P 500 average, but are substantially lower than many of its peers. Like many firms in its industry, Plexus has a low price-to-book multiple (1.66) that is cheaper than the market average. The firm is generating cash with a respectable 7.6 price-to-free cash flow ratio and is financially strong, based on its reasonable 0.43 debt-to-equity ratio.
Celestica, Flextronics, Jabil, and Plexus offer investors attractive valuations. Long-term investors should consider all of these stocks as investment candidates, and they should learn to shrug off short-term sales problem derived from a client's supply chain. Investors should be thrilled to buy shares of Jabil because of its strong sales growth trend, attachment to the Apple growth story, and excellent valuations.
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BillEdson11 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple and Plexus. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.