Rising Star Buy: Time for Some More Nam Tai Electronics

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

This article is part of our Rising Star Portfolios series.

My timing couldn't have been better, if you, like me, have a sense for the ironic.

On March 9, I published the original buy article for electronic component manufacturer Nam Tai Electronics (NYSE: NTE  ) and purchased shares on March 10. The very next day, Japan was rocked by the 8.9 earthquake and got hit by the massive tsunami it produced. The Japanese have been dealing with the effects ever since.

It's not the first time my timing has been perfectly synchronized with disaster. I bought the second of three positions in BP just one week before the Deepwater Horizon rig explosion and subsequent oil spill happened last April. Those shares, just like Nam Tai's have done, promptly fell off a cliff. BP's shares fell because of its involvement in one of the larger man-made disasters in recent history and the potential for liability. Nam Tai's shares have fallen because of supply chain concerns for high-tech companies with ties to Japan.

Here's the meme
A lot of electronics parts are made in Japan and the ability to continue manufacturing in the near-term is uncertain. Texas Instruments (NYSE: TXN  ) , for instance, has said that its chip manufacturing plant in Miho, about 40 miles from Tokyo, has suffered "substantial damage." Others don't have a reliable, uninterrupted supply of electrical power and won't if Japan continues with its rolling blackouts. That puts a crimp in supply chains for many consumer electronics devices. Therefore, manufacturers of those devices will be hurt until they can either find new suppliers or Japan's manufacturers repair the damage and get reliable power once again.

Now that's true as far as it goes. What this does for us it help create an opportunity -- a Messed-Up Expectation.

My expectation for Nam Tai
Nam Tai is not tied exclusively to Japan for its supplies. While it specifically calls out China and Japan as sources for its supplies in its latest annual report, it also gets parts from Taiwan and South Korea. It says a few of its supplies are from a single source, but for its major components, it lists several different sources. At this point, I don't expect it to have significant problems in changing sources. The risk is probably higher costs due to higher demand at other suppliers as I expect many companies to do the same shuffling.

I expect this to be a relatively short-term problem, especially considering that I'm expecting to hold the shares for more than just the next quarter or two, unlike many on Wall Street.

Since Nam Tai is debt-free, unlike its competitors Flextronics International (Nasdaq: FLEX  ) and Jabil Circuits (NYSE: JBL  ) , and has been cutting costs over the past year,  I feel it's in a good position to ride out any temporary slowdown in inventory supplies or sales due to the aftereffects of Japan's earthquake and tsunami.

Responding to the market's expectation
At last night's closing price, the market is pricing less than 1% per year growth in free cash flow for the next 10 years and no further growth after that (discounting at my 15% hurdle rate). I know there are some worries about the effects from Japan, but c'mon. It won't ever be able to work around them? Really? If we assume that it can work through any problems and let the company grow at 12.5% per year for five years -- what the one analyst following it has predicted -- half that for the next five, and 2.5% afterward, and, as I wrote before, you'd expect shares to be over $12. What was a potentially 60% upside three weeks ago is now over 90%.

Therefore, the Messed-Up Expectations portfolio will purchase another $360 worth of shares tomorrow. That will be the maximum, however, as the risks called out in the original buy article still exist.

Oh, getting back to BP. I purchased the final set of shares last summer, missing the price bottom by a single day. As BP's shares have risen to their current level, that one purchase has pulled the entire position into the black. I wouldn't be surprised to see similar results with Nam Tai.

After you've added Nam Tai Electronics to My Watchlist, come discuss this decision with me over on the MUE discussion board.

Fool analyst Jim Mueller owns shares of BP, still, but not of any other company mentioned. He works for the Motley Fool Stock Advisor newsletter service. Nam Tai Electronics is a Global Gains pick. The Fool owns shares of Nam Tai and Texas Instruments. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.The Motley Fool's disclosure policy is never messed up.

Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1467194, ~/Articles/ArticleHandler.aspx, 10/23/2016 12:31:26 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
NTP $7.55 Down -0.01 -0.13%
Nam Tai Electronic… CAPS Rating: **
FLEX $13.74 Down -0.06 -0.43%
Flextronics Intern… CAPS Rating: ****
JBL $21.68 Down -0.05 -0.23%
Jabil Circuit CAPS Rating: ***
TXN $69.97 Up +0.22 +0.32%
Texas Instruments CAPS Rating: ***