Investment Idea: An Overlooked Sector
If someone were to ask you what the "hot" sectors are, you would invariably respond: fiberoptics, non-PC chips, wireless telecommunications, and internet infrastructure. What if I told you that there was one more, with characteristics similar to the fiberoptics sector, namely:
(1) limited competition, with a few dominant players; (2) high barrier to entry; (3) extraordinary demand, with rate-limiting profit factor for the companies in this sector that they can't keep up with demand. Well, here it is:
ECM (Electronics Contract Manufacturers)
Unlike the above-mentioned sectors, this sector is STILL trading at or near its YTD lows and has not rebounded the way many other high profile tech stocks have. However, the ECM stocks have shown remarkable relative strength with NONE of the major players off their 52-week highs by more than 30%! Contrast this to many of the high-flyers that were off 50-75% from their 52-week highs.
These are the companies that do the high-tech "grunt-work" -- they provide electronic manufacturing services to OEM's, including circuit-board assembly, system assembly and testing, product design, and purchasing & management services.
The major players are: Solectron(SLR), Flextronics(FLEX), Sanmina(SMNA) and Jabil Circuits (JBIL). These are LT holds for the patient investor. However, these are all highly profitable companies trading at reasonable valuations with strong sequential earnings increases. I do not know what the trigger will be to provide upward momentum to this sector. However, most of the recent analysts ratings (FWIW) have been "BUY" to "STRONG BUY".
If you feel that you've missed the rebound on many of the more visible tech stocks, a basket of these stocks may be profitable over the next 6-12 months with little downside risk.
Finally, another investment play is to consider some of the stocks in the high-profile sectors that have not as yet bounced significantly off of their recent lows in mid-April.
Some examples:
fiberoptic: IFCI
non-PC chips: ANAD, TXCC, VTSS, CNXT, XLNX.
CNXT and VTSS are VERY oversold, IMO. Anyway, food for thought.
Disclosure: I am long: SLR, FLEX, VTSS, ANAD, TXCC, XLNX. |
