Hi Rich,
There has been a little conversation on the Jabil thread from a few old-timers, so you might check that thread out. Not too much to talk about, though, as the stocks have slowly drifted down down down. The trading ranges have been wide enough to make good money for traders, if they had the courage to jump in near the bottoms and get out even close to the tops. I haven't played that game this year, did it a little last year, as usual bought and sold too early, but made a little money.
I have mostly been out of the ECM stocks. Like you, I have been watching, but don't think the stocks will go up without establishing some sort of base, though, which means I don't think they will be going up anytime real soon. Have to make some lows, go up a little, meander, then test the lows again. Probably will have to get to some pretty low valuations before the process is completed. I'm guessing that SLR may go below 5 before this is over, FLEX may be in single digits, CLS and JBL will be teenagers, and SANM/SCI, well, who knows. Guess it will depend on how quickly SANM can get SCI's factories in order or closed down. Even though they all will pick up new business, the telecom sector--which they all depend on, though some more than others--is so burned out that they will need the new business just to stay even. And of course, the PC business just keeps getting raggedier and raggedier. As you say, demand will have to pick up before electronics manufacturing will be robust again. This is why all the outsourcing took place, so the ECM clients won't have to carry the fixed costs connected to manufacturing.
At the end of the day, though, I think the ECM companies will come roaring back, with their niche in the manufacturing sector more assured than ever. As long as they have the cash and balance sheet to survive. And, my guess is, they will build into their future prices more margin so that they will be more easily able to withstand the cycles. Which means that they will be more profitable at the top of the next cycle. How that will work into the stock price is another question, though, as investors may treat them as more cyclical plays, and award them lower PSRs and PEs. But all that is getting priced into the stocks right now. How it shakes out will certainly be interesting. I do think that at some point, the surviving ECMs will be triple and quadruple baggers, and maybe even better than that. As usual, timing is everything.
Best wishes,
Sam |
