ITT Overlooked And Undervalued As A Late-Cycle Play

I'm not sure it's entirely appropriate to call a stock followed by over a dozen sell-side analysts and widely-owned by institutions "overlooked", but I don't get the sense that ITT (ITT) is as widely-known among investors as it should be. And, that's a shame. ITT isn't perfect, but I like this diversified industrial's philosophy of adopting best practices irrespective of their source, not to mention broad late-cycle exposure and a strong growth auto business.

Below the mid-$60s, I think ITT is undervalued. While there is some asbestos liability here, I believe it is well-covered, and the company has the dry powder available to make select acquisitions to build out its operations further. I believe the perception of the auto business has already corrected, and ITT's short-cycle industrial exposure is moderate, and so I believe this is a good time and place to consider this name.

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ITT Overlooked And Undervalued As A Late-Cycle Play

Sensata's (ST) strong record as a supplier of sensors and controls to multiple markets (but primarily auto OEMs) didn't really protect the shares when growth started to slow in 2015 and 2016, and investors began to worry that newer entrants like Amphenol (APH) and TE Connectivity (TEL) were pushing the company aside. While the 2015-2017 period was not a great one for the company, it looks like the prophets of doom went a little overboard, as Sensata's growth has been recovering and with it the share price as well.

I liked Sensata shares back in May of 2017 when they traded below $40, but it's harder for me to argue that there's substantial undervaluation now. What's more, light vehicle production isn't looking so strong outside of China, and we're in the later part of the semiconductor cycle. I like the prospects for Sensata to continue growing content and diversifying beyond autos, but I don't see the shares as particularly undervalued anymore.

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Sensata Back To A More Reasonable Level

Sensata Technologies Has Cooled, And That May Be An Opportunity

Sensata Technologies (NYSE:ST) is an example of what happens when a high-expectations story doesn't live up to those expectations. While the company has performed reasonably well since my last update from a financial/operating perspective, the shares are down about 7% since my last update and down about 12% this year as investors have come to realize that auto sales can't grow to the sky.

I do believe this may be a good time to do some due diligence on Sensata. The company still has strong positions in its addressed sensor and control markets, and sensors offer some respectable long-term margin opportunities. What's more, there's a lot more Sensata can do to grow its business outside of autos, while also leveraging the benefits of past acquisitions. If Sensata can pair mid single-digit revenue growth with high single-digit FCF growth, these shares look undervalued today and priced for a double-digit annualized return.

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Sensata Technologies Has Cooled, And That May Be An Opportunity

The Amphenol Machine Rolls On

Long-time readers know that I have a real soft spot for companies that make the "guts" of the equipment we use in our daily lives but don't often think about all that much. The connectors, interconnect systems, sensors, and cables made by Amphenol (NYSE:APH) certainly qualify; pretty much anything that uses electrical power uses connectors at some point.

Amphenol is among the market leaders in this nearly $50 billion industry, but the company has also been building its capabilities in other markets like coaxial cables and specialty cables, as well as sensors. Importantly, Amphenol doesn't try to be all things to all customers, and the company generally tries to focus on higher-margin, more complex product categories. Combined with ongoing M&A and very consistent high-end execution, Amphenol has been able to roughly double the industry growth rate while producing double-digit returns on invested capital. All of that makes it an excellent company, but alas, the valuation is no bargain now insofar as I can see.

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The Amphenol Machine Rolls On

Materion Past The Worst

Back in April, I thought that Materion (NYSE:MTRN) shares looked a little too cheap and the stock and the shares have since climbed almost 20%. There really aren't many good comps for Materion, so the performance of companies like Eastman Chemical (NYSE:EMN) or Johnson Matthey (OTCPK:JMPLD) isn't all that instructive, nor is the performance of specialty steel, nickel, and titanium alloy companies like Carpenter (NYSE:CRS) or Allegheny (NYSE:ATI). Basically, this is a case where the cheese stands alone, though connector companies like TE Connectivity (NYSE:TEL) and Amphenol (NYSE:APH) do tend to travel in similar directions and have some shared end-market exposures.

The good news for Materion is that business seems to be recovering, as revenue has logged two consecutive sequential improvements and should do so again in the third and fourth quarters. Margins have held up reasonably well through this downturn and free cash flow has remained positive. While I do believe that improving conditions in smartphones, aerospace, satellites, and telecom infrastructure should help the company post better growth over the next three to five years, it's important to remember that Materion has never been a champion in terms of reported return on invested capital or FCF generation. The shares do look a little undervalued, though, and improving momentum in its core addressed markets could still leave a little room for further appreciation.

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Materion Past The Worst

Seeking Alpha: Will 2015 Be A Real Growth Year For PCTEL?

PCTEL (NASDAQ:PCTI) has been a frustrating stock for some time now. While the company has refocused around businesses with credible addressable markets and growth potential in antennas and test equipment, the stock has gone nowhere fast over the last three years (though to be fair, equipment/component supplier JDSU (NASDAQ:JDSU) has done even worse).

Will 2015 be a different, better, year for PCTEL's shareholders? China Mobile's (NYSE:CHL) more aggressive roll-out of TD-LTE is a real opportunity for the company, given its relationship selling scanning receivers used to test LTE deployments. A strong contribution from this higher-margin business would indeed be welcome, but PCTEL really needs to see markets like WLAN, smart grid, fleet management, and so on pick up (and use their antennas) to maintain that momentum. If PCTEL can leverage these opportunities, a share price above $10 seems reasonable in the near-term.

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Will 2015 Be A Real Growth Year For PCTEL?

Investopedia: Now May Be The Time For Jabil

There are plenty of valid reasons to take one look at an EMS provider like Jabil Circuit (NYSE:JBL), Flextronics (Nasdaq:FLEX) or Celestica (NYSE:CLS) and not bother again. After all, this is a highly cyclical market where the companies have minimal control over their own revenue, narrow margins and returns on capital that arguably do not cover their cost of capital. 


And yet, savvy investors realize that there may be a time and place for almost any stock. With the tech market in the doldrums and several major customers gasping, Jabil should be in rough shape. Oddly enough, the company is doing relatively well and may in fact be worth a look from investors who understand that this would not be a permanent engagement.

Decent Third-Quarter Performance
Third-quarter results at Jabil were not too bad, particularly given the weakness at customers like Research In Motion (Nasdaq:RIMM) and Cisco (Nasdaq:CSCO). Revenue rose 22% from the year-ago level, and 8% from the prior quarter, surpassing the consensus estimate by almost $100 million. Growth was strong in the Enterprise and Infrastructure and Diversified Manufacturing Services units, and those offset weakness in High Velocity Systems.
 

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http://stocks.investopedia.com/stock-analysis/2011/Now-May-Be-The-Time-For-Jabil-JBL-FLEX-CLS-RIMM-AAPL0624.aspx

Jabil's Good News May Be Fleeting

Jabil Circuits (NYSE:JBL) is a very nice property in a really rough neighborhood. Unfortunately, being among the best electronics manufacturing services provider is a little like being the tallest Oompa Loompa - it is nice on a relative basis, but not so impressive outside its own industry. The fact is, the EMS industry is brutally competitive and price sensitive, and it is difficult to see how Jabil can sustain enough of an economic advantage to allow the stock to really do well over the long haul. 

A Solid Quarter To Start The Fiscal Year 
Jabil does deserve credit for producing solid results in this first fiscal quarter. Revenue rose 32% from last year and 6% on a sequential basis. As investors might imagine, the performance of a company like Jabil is always going to fall somewhere between that of its best-performing customers (like Research In Motion (Nasdaq:RIMM)) and its lagging customers (like Cisco (Nasdaq:CSCO)).

Diving a little deeper, revenue growth was strongest in the high-velocity systems business, which serves customers like RIMM, Hewlett-Packard (NYSE:HPQ) and Nokia (NYSE:NOK). Growth was also quite strong in the diversified manufacturing services segment (which serves customers like Tyco (NYSE:TYC)), where the "specialized" business more than made up for lagging performance in industrial/clean-tech and healthcare/instrumentation. Enterprise and infrastructure, which includes Cisco, was the laggard this time around. 


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Is Carlyle Looking At The Next Fiber Gold Rush?

Private equity has certainly been waking up to tech lately (including the recent discussions about disk drive maker Seagate (NYSE:SGX), so perhaps Carlyle's interest in cable and wireless equipment maker CommScope (NYSE:CTV) is nothing more than an opportunistic deal. Thinking about the bigger picture, maybe Carlyle is looking for a second gold rush in the cable and fiber markets. 

The Deal That Might Be
At this point there is no official deal, but CommScope has confirmed that there are discussions. According to a Bloomberg report, Carlyle would possibly offer $31.50 per share in cash - a deal that would be a decent one-third premium to CommScope's closing price on Friday. Interestingly enough, though, not only is that price not all that rich on a valuation basis, but it does not even match the company's 52-week high. (For related reading, check out Private Equity A Trendsetter For Stocks.)

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http://stocks.investopedia.com/stock-analysis/2010/Is-Carlyle-Looking-At-The-Next-Fiber-Gold-Rush-CTV-VZ-FTE-EMR-GLW-APH-PWAV1026.aspx