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Strategies & Market Trends : Electronic Contract Manufacture (ECM) Sector -- Ignore unavailable to you. Want to Upgrade?

To: rich evans who wrote (995)	12/18/1997 12:18:00 PM
From: kolo55	Read Replies (2) \| Respond to of 2542

I don't have a strong opinion on Plexus here. On a PSR basis, it sure is getting attractive, with a forward PSR of about 0.50. On a PE basis, it will probably only earn a buck over the next year, so its trading at a forward PE of 14-15. I'd rather own FLEXF at 35 which will grow much faster, and is trading about 13-14 times my estimate for calendar 98 and has a similar forward PSR. But I would really need to get behind the numbers and find out why Plexus disappointed here, so I'd like to see the earnings announcement first, and give the stock time to find support. I was way too early in ACTM, and the stock dropped another 35% even after the 35% drop on the earnings warning. I'm beginnning to think like General Andrew Jackson, and not shoot "until I see the whites of their eyes". I think I'll have plenty of time to analyze Plexus before it runs away. Incidentally, I'm not too enthralled with the mid-tier domestic ECM company strategies. The big growth is ocurring overseas now, with Mexico, China, Brazil, and Hungary the hot sites for new ECM expansion, and the guys with Malaysian plants(SLR,JBIL,FLEXF), looking real good with the ringitt devaluation. These mid-tiers are missing out on the big growth driver in ECM sector. First ACTM, and now PLXS have "hit the wall", and I would keep a wary eye on BHE, since they are a similar player. All three of these stocks more than doubled this year before recent troubles. Paul

To: rich evans who wrote (995)	12/18/1997 12:22:00 PM
From: jeffbas	Respond to of 2542

Rich - 18acastra's comments make sense but only so far. I do not see any particular reason why companies requiring 100 items from an ACTM should inherently be growing slower than companies requiring 100,000 from a SLR. In fact I could make the opposite case, and that has been ACTM's history and expectation until their recent stumble. Paul's point that the growth is overseas makes sense if it is to serve more rapidly growing outsourcing trends in those countries, but not otherwise, except in so far as it may be cheaper to produce the 100,000 item order there. (I doubt that it is practical to have a 100 item US order produced in Maylasia.) Specifically, on ACTM, the recent decline took the price below any relative price seen by PLXS today, or any other ECM for that matter. I think that both Paul and I feel that it is cheap by most valuation yardsticks. Virtually any kind of recovery should lead to handsome price appreciation from this level, at which time their plans and success at implementing what I discuss in the last paragraph below would need to be examined. As far as need for these smaller ECM companies is concerned, ask yourself whether you think SLR would have much interest in producing for someone 100 items costing $500 each. I believe this industry is similar to the electronics distribution industry where, in recent years, ARW and AVT were not interested, and probably could not afford to provide their full range of services to small companies. However, smaller companies were there for this business. Paul has, however, made the point that as the smaller volume customers grow, the niche ECM's have to have some capabilities for producing elsewhere, or their customers will graduate to the larger volume ECM's. I believe that he is right.

To: rich evans who wrote (995)	12/18/1997 12:42:00 PM
From: 18acastra	Read Replies (1) \| Respond to of 2542

I think some of the best opportunities are with low multiple stocks. Oftentimes, Wall Street gets enamored with what they believe to be the best companies and completely forget about valuation. The risk/reward on some overlooked plays can be exceptional. Great examples were Elexsys at $10, and Flextronics in the low $20's. Time and time again, people forget about valuation. For me it is an incredibly important metric. But cheap is not also always best. You also have to have a fundamental opinion that the cheap company will somehow right itself. If you believe that fundamentally Plexus or ACTM will continue to grow at 20+% you have got an easy 2x stock here. If you believe they are strategically challenged business and they are going to go away over time, than the stock is expensive here. Not all companies in good growth sectors are good stock investments. Look at Cabletron. Hard to think of a better sector than networking, but Cabletron is continually losing share and shrinking. In the end a combination of fundamentals and valuation drive investing success. Sometimes, stocks get so cheap, not a lot one needs to believe in to buy (Graham & Dodd). Plexus and ACTM are not that cheap yet, so you need a fundamental story to be a buyer. My opinion.