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

To: Creditman who wrote (1414)	4/3/1998 3:18:00 PM
From: jbe	Read Replies (3) \| Respond to of 2542

Question(s) for All: Re SCI, PLXS, BHE What is going on with SCI? To explain: my portfolio is overweighted with ECM companies: I have all three stocks listed above. I bought them in large part because of their excellent valuation ratios. The one I pay particular attention to is the price/free cashflow ratio (free cashflow defined as net income plus depreciation minus capital expenditures), because in my view free cashflow is a better indicator of value than more easily manipulable earnings. And good free cashflow gives a company more room to maneuver in tough times, especially if it's in a sector (like this one) with relatively low profit margins. To get to the point: the sector ain't in great shape, and my ECM stocks are all down. I figured it might be time to weed one or two out of my portfolio. I didn't think it would be SCI, because I bought it some time ago and it is still way up from its purchase price. Taxwise, it would make more sense for me to shed PLXS or BHE. But I figured I would check out SCI again, anyway. Well -- what a surprise! Whatever happened to SCI's great positive free cashflow? It has literally careened into negative cashflow territory, having slipped all the way from the 90th percentile, last time I checked, down to the 10th percentile of all companies! Its price/FREE cashflow ratio is a miserable -24, even though its plain old price/cashflow ratio is still excellent (+10.0). I checked out the 1997 annual report, and although there were major capital expenditures last year (what were they?) they don't seem sufficient to explain this plunge. I notice that in 1997 there seemed to be problems with receivables and inventory backlogs. Could that situation be continuing, and could that be the problem? This concerns me, especially in view of the fact that SCI's net profit margin is only half that of BHE and PLXS, while its debt is higher. If I sound paranoid on the subject of negative free cashflow, it is because I have been burned once before. Last summer, I noticed that a stock I held -- Oxford Health -- had suddenly developed negative free cashflow. For me, that was the signal that the stock was in trouble and that it was time to get out of it. (Why so few people picked up on that signal still mystifies me.) However, I dilly-dallied, and got caught in the Great Downdraft last October, during which a great deal of money was sucked out of my pockets. At the same time, I don't really know that much about the business that SCI is in, and I am not a financial analyst. So, I ask the better informed: Is SCI in trouble or not? And what (if anything) do you think of BHE and PLXS? Sorry to have yammered your ears off! And I hope somebody can address my questions. jbe