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A Dirt-Cheap Tech Stock to Buy Right Now

By Harsh Chauhan – Dec 9, 2021 at 9:07AM

Key Points

  • Jabil will release its quarterly earnings results on Dec. 16.
  • The company could deliver stronger-than-expected results thanks to a diversified revenue stream.
  • Jabil's largest customer is going to be a key growth driver for the company in the long run.

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Buying this stock on the dip may turn out to be a smart move.

Share prices of contract electronics manufacturer Jabil (JBL 1.66%) are down more than 4% in the past month as stocks of companies that form a part of Apple's (AAPL 1.98%) supply chain have taken a beating thanks to reports of weak iPhone 13 demand and production bottlenecks.

Jabil makes casings for iPhones and iPads, getting 22% of its total revenue from Apple in fiscal 2021. So, the stock's drop isn't surprising as the near-term prospects of its largest customer appear gloomy. However, Jabil's slumping stock price could get a shot in the arm when the company releases its fiscal 2022 first-quarter results before the market opens on Dec. 16, 2021. Let's see why.

Person holding a smartphone with a stock chart on it.

Image source: Getty Images.

Jabil has multiple catalysts

Jabil expects Q1 revenue of $8.3 billion, according to the midpoint of the guidance it had issued on Sept. 29, which would be an increase of 5% over the prior-year period. Adjusted earnings are expected to land at $1.80 per share. Wall Street, however, anticipates $8.28 billion in revenue from Jabil, which is lower than the company's expectation. That's probably a result of Apple reportedly telling its suppliers that the demand for iPhone 13 has weakened ahead of the holiday season.

However, it is worth noting that Jabil has other robust catalysts that could help it overcome any potential headwind arising out of weak demand from its largest customer. For instance, Jabil provides its manufacturing solutions to customers in the auto and transportation sector, which delivered impressive growth last year.

Jabil's revenue from automotive and transportation had increased 29% in fiscal 2021 to $2.2 billion. This impressive momentum is expected to continue in the new fiscal year as Jabil is anticipating "incredibly strong growth in automotive." That's not surprising, as Jabil points out that the adoption of autonomous cars and connected vehicles, and the growth of electric vehicles, will lead to increased demand for its services.

Similarly, Jabil can also tap the increase in semiconductor capital equipment spending. It provides solutions for the design and fabrication of semiconductor manufacturing equipment, along with testing and validation of the equipment. Jabil generated $3.5 billion in revenue from the semiconductor capital equipment segment last year, and it could continue to enjoy strong growth over here for a long time to come given the booming demand for chips and the resulting shortage that's encouraging chipmakers to invest in equipment.

Meanwhile, other lucrative areas, such as 5G, cloud, networking, and storage, account for a major chunk of the company's revenue and are slated for growth in the long haul. Such diversity in Jabil's end markets and its presence in fast-growing verticals tells us why the company's top line is expected to increase 7.6% in fiscal 2022 to $31.5 billion, while earnings are estimated to jump 13% over last year to $6.35 per share.

As a result, don't be surprised to see the company exceed expectations once again as it has done in the past four quarters.

More reasons why this stock is an enticing bet

Apple's iPhone sales may take a hit in the near term as the company is unable to make enough devices to satisfy demand, which is reportedly causing customers to lose interest and drop the idea of buying the iPhone 13. However, investors shouldn't forget that Apple will be a long-term tailwind for Jabil, given the former's hold over the 5G smartphone space and a huge installed base of users that are yet to upgrade to a 5G-enabled iPhone.

This explains why Apple's iPhone sales could head higher in the coming years according to Credit Suisse estimates, jumping to an estimated 249 million units in 2023 from this year's estimated shipments of 234 million. Throw in the other catalysts discussed earlier in the article, and it becomes easy to see why Jabil stock is a steal right now, given its valuation.

Jabil trades at 13 times trailing earnings and 9.4 times forward earnings, making it way cheaper than the S&P 500's earnings multiple of 28. A strong quarterly report could send Jabil shares flying and make the stock more expensive, which makes this tech play worth a closer look right now as it is not only cheap but also seems capable of clocking double-digit earnings growth over the long run as per analysts' estimates.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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