Even when hot, fast-growing stocks are no longer bargains, you can often still profit from the companies that do business with them. But as costs increase abroad, the success of such a strategy is steadily becoming more difficult.
All about the contract
If you're drawn to Coinstar and its expected near-term growth, but worried about its competition, you might look at Flextronics
Unfortunately, part of the cost advantage that companies like Flextronics enjoy comes from the significant amount of Chinese labor they've used. In recent years, development in China has driven steady wage growth there; the cost of Chinese labor now reportedly approaches that of Mexico. These higher wages might pressure manufacturers' profits, which may drive them to raise prices for the larger companies that now rely upon them.
Contract manufacturers have served many investors well over time. But the growing wage threat should encourage you to cast a wider net when searching for promising investments. Plenty of compelling companies will be far less hurt -- or even helped -- by changes in China.
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Longtime Fool contributor Selena Maranjian owns shares of Apple. Apple and Netflix are Motley Fool Stock Advisor recommendations. The Fool has a bull call spread position on Cisco Systems and owns shares of Apple. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.