Investopedia: Jabil Likely Still In A Holding Pattern

For a couple of quarters now, I've thought that Jabil Circuit (NYSE:JBL) looked undervalued on a long-term basis, but that the trends in the electronic manufacturing services (EMS) industry were likely to keep the stock stuck. To that end, the shares are down about 1% for the year, even though the company's business with Apple (Nasdaq:AAPL) seems to be ramping up well. I continue to believe that Jabil's current price understates its long-term value, but I also believe that getting the timing right on when to buy this stock could be tricky given the ongoing malaise across so much of consumer and tech hardware.

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Investopedia: For Jabil, The Price Is Right But The Timing Is Uncertain

I don't know whether Jabil (NYSE:JBL) is really going to succeed in differentiating itself over the long term from the broader electronics manufacturing service (EMS) industry. What I do know, though, is that this is a tough stretch for the global economy and for key end markets like handsets, medical equipment, and communications/networking hardware. Jabil's stock does look undervalued, though, and while I think it may be too soon to make a major commitment here, I can see how this stock could appeal to more aggressive value hounds.

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Investopedia: Value Is Value When It Comes To Jabil

I've never been fond of Jabil (NYSE:JBL) as a long-term holding but, I did write back in September that I thought the stock might be priced to perform. And the stock was quite obliging in that regard, as it rose more than 50% over the next six months before taking another sharp downward turn. While I still have major reservations about owning these shares over a long stretch of time, the upcoming Apple (Nasdaq:AAPL) iPhone launch could offer some upside.

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Investopedia: Is Jabil Quietly Loading Both Barrels?

Investors should be careful to place only a very few stocks in the "permanently uninvestable" box. Typically this is reserved for companies where management is untrustworthy, the business is in inexorable decline or the cyclicality is just too much to bear. While I confess to being quite hard on Jabil Circuit (NYSE:JBL) in the past and very nearly putting it in that dreaded box, this company may actually be shaping up as an interesting play for the next few years.

A Solid Close to the Year  

Part of my skepticism on Jabil has been based on the company's customer list. Right now, if you rely on Cisco (Nasdaq:CSCO), Research In Motion (Nasdaq:RIMM) and NetApp (Nasdaq:NTAP) for meaningful revenue dollars, you cannot be feeling too good. And yet, Jabil managed to post a very solid quarter all the same - testament, perhaps, to the company's diversity of clients and markets.

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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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Investopedia: Can Jabil Take The Next Step?

There is a certain cyclical rhythm in the electronics manufacturing services (EMS) space. Orders are cut in the bad times and clients will in-source manufacturing to boost their own utilization rates. Then, as things get better, the cycle reverses and EMS companies once again see more business. As this process unfolds, revenue rises, margins improve and estimates move higher. Last and not least, even the EMS companies come up against capacity constraints, the industry peaks, and the whole cycle starts anew. 

Every cyclical industry has periods where the stocks tend to outperform, and investors can do well if they time their buys and sells appropriately. Turning to Jabil Circuit (NYSE:JBL), then, the question is whether there is still reason to hope for improvement and more momentum in the story.

A Fine Second Quarter 

Although there have been some growth concerns around major Jabil clients like Cisco (Nasdaq:CSCO) and Research In Motion (Nasdaq:RIMM), Jabil nevertheless produced a respectable quarter. Revenue grew 31% from last year and surpassed the average analyst estimate.

Below the top line, Jabil delivered some of the results that an investor would expect in that more favorable back half of the EMS cycle. Gross margin was only slightly better than in the year-ago period, but the company wrung very solid leverage out of its SG&A spending, which fueled growth in adjusted operating income of 76% (or 69% in GAAP operating income).  

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Investopedia: Is The New Smartphone ETF A Smart Idea?

Smartphones have proved to be a breakaway success in consumer electronics - not to mention a multibillion-dollar market opportunity. Not surprisingly, this has fueled runs in a number of stocks and significant investor interest in playing the ecosystem. Now, investors have an easier one-stop shop for this play with the introduction of First Trust's Smartphone Index Fund (Nasdaq:FONE). (For some background on the smartphone market, check out The Apple Ecosystem.) 


Smartphone ETF: How It's Built
FONE is an exchange-traded fund (ETF) that is designed to closely track the Nasdaq OMX CEA Smartphone Index. This index includes a variety of companies organized into three primary categories - handsets, software applications and hardware components, and network providers - with 45% weightings to the first two and 10% to the last. Within each segment, the components are equally weighted.

The Good 

There is no question that FONE offers a diversified play on a broad definition of the smartphone market. All in all, the fund holds 73 positions with the top 10 positions amounting to about 28% of the total holdings. While the expense ratio is something of an issue, it is hard to see how a retail investor could assemble anything close to a diversified portfolio of similar component, service and equipment stocks and not spend more in commissions.

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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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