You want me to argue with your mis-stated position.
I was comparing SCI with FLEX, and your post back discusses FLEX compared with CLS. I did my in-depth analysis of this sector about 12-24 months ago, and decided FLEX was my preferred investment vehicle. At one point about 16 months ago, SCI, SLR, FLEX, and JBL all traded within in few points of another at around 30 pre-split. In the time since then, the market certainly has moved the better companies up to a premium over SCI.
But that won't dissuade you from mis-stating my position, and stop you from editing my comments to your advantage. Here's your post, followed by my actual unedited comments:
March 16: But I still maintain that FLEX should trade at a 30-50% premium to CLS shares. If FLEX backs off to 42, and CLS rallies to 28-30, that would put them at fair relative valuations (40-50% premium).
Actual full March 16 comments regarding price comparisons:
Regarding the "40% more overvalued" comment, I think the pop in FLEX Friday and yesterday was due to favorable comments and publicity in Investor's Business Daily and The Street.com, and these are not the kind of shareholders I welcome. Rallies after mentions in these rags tend to be short-lived, and often reverses. But I'm pleased to see
that FLEX has almost caught up to SLR share price, as I predicted.
But I still maintain that FLEX should trade at a 30-50% premium to CLS shares. I would agree at this point that CLS possibly has some catching up to do. If FLEX backs off to 42, and CLS rallies to 28-30, that would put them at fair relative valuations (40-50% premium).
On the other hand, big institutions seem to like to buy the best performing companies, not the cheapest, these days. And the best companies in the sector are SLR, JBL, SANM, and FLEX. Their premiums to the sector could just keep growing.
From the analyst report you cited:
-We believe Celestica has the opportunity to have one of the fastest earnings growth rates in the industry (30%) over the next five years.
This is precisely the problem. They will grow 30%, and FLEX and JBL will grow over 40%.
My current comments on relative valuations of FLEX versus CLS:
As usual the volatility in this sector leads to some strange short-term relative valuations. FLEX gave up 30% from the highs hit close to the time of my post, and today CLS traded as little as a 5 point premium to FLEX (only about 13%). This is in spite of FLEX's greater earnings per share and the likely higher growth rate for FLEX.
I think it would be a good time to short CLS and buy FLEX when the stock price differential is less than 15%. I expect that as FLEX's faster growth prospects become apparent, FLEX will open back up to a 30-50% premium over CLS shares. This is what I was referring to in my post today, when I said:
"In fact, if FLEX tries to drop below 40, I consider it a preferable buy to SCI at 38-40, especially so for the long term. I already see FLEX as mis-priced relative to some of its peers."
I don't think anyone could construe my March 16 post as recommending purchase of FLEX at over 48-50 per share. I usually post my trades in the EMS sector, unless its some sort of pair trade, or hedging trade. Today, I did buy FLEX at 44, and I did short one of the EMS stocks as a pair trade. Right now CLS is a prime candidate to short versus FLEX.
Paul
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