Investors that chose Jabil Circuit
The best answer may be avoiding the space all together. Analysts had previously opined that EMS companies would be the first tech firms to recover from the dot-com bubble; companies looked to reduce costs by outsourcing capital intensive production to EMS firms that would benefit from manufacturing economies of scale. Well, for the most part, investors are still waiting for a recovery, though certain firms such as Jabil have proven adept at finding ways to grow. Solectron
For a recent update on Jabil's third-quarter results, check out fellow Fool Dan Bloom's take. Overall the results were disappointing, but Jabil does have a much stronger track record and higher quality earnings than most of its competitors. It's also, as management contends, likely experiencing a number of shorter-term issues in its operations. In addition, one of the biggest considerations regarding EMS companies is the financial health and growth expectations of its largest customers. Jabil's client base is seen as more diversified and includes more stable firms such as Nokia
Investing in the Electronic Component Manufacturing (ECM) space -- as the EMS industry is also known -- has been filled with landmines, especially for those overly exposed to the putrid telecom sector. That may interest certain value investors who see a turnaround for some of the more beaten-down names. Plus, analysts still see growth on the horizon as firms continue to outsource manufacturing to enhance their own margins. I would prefer to invest in less competitive, less capital-intensive industries with higher margins (but then, I've already been burned by the likes of Solectron and Sanmina in the past). Perhaps I should have chosen Jabil or Flextronics
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Fool contributor Ryan Fuhrmann is long shares of Nokia and Nortel, but has no financial interest in any other company mentioned The Fool has an ironclad disclosure policy . Feel free to email him with feedback or to further discuss any companies mentioned.