Fool contributor W.D. Crotty recently wrote a Take detailing many of Solectron's (NYSE:SLR) current struggles. W.D. discussed a number of problems with Solectron's business, including low margins, commodity inflation, and too large a percentage of sales to two specific customers, Cisco (NASDAQ:CSCO) and IBM (NYSE:IBM). Oh yeah, there was also a poor outlook for the rest of the year and news of an earnings restatement for the past three years, although the company claims that won't matter.

These are all valid concerns, and Wall Street agrees with W.D., it seems: It sent the shares of Solectron -- a leading provider of electronics manufacturing and integrated supply chain services -- spiraling downward by around 20%. As a Solectron shareholder my head is still spinning, but I'm not selling my shares because I believe there is reason to be optimistic.

Here's why:

1. The best time to buy stock in a company operating in a cyclical industry is when things look bad. Any investor who waits until the outlook appears favorable will have to pay a much higher price for the shares. Just as surely as business is poor now, business will pick up later.

2. Management appears to really be on the ball. In response to the downturn of 2002 and 2003, management has cut costs, sold non-essential assets and improved its quote process, so it accepts only business that will provide an acceptable financial return. These actions have resulted in higher margins, and the company's debt load has fallen to $1.23 billion from $5.34 billion back in 2001.

3. Despite showing a net loss this quarter, many aspects of Solectron's financial and operating performance improved since the previous quarter. Check out this list.

  • Debt is down slightly (good).
  • Cash is up by $280 million (good).
  • Inventory is down by $170 million (definitely good).
  • Inventory turns are up (you guessed it -- this is good).
  • Days sales outstanding are down (this is getting tedious -- also good).

All of these positive factors combined with a trend toward increased outsourcing of electronic manufacturing services should position Solectron well for the future. If you can tolerate some risk, buy a few shares now, bury them in the backyard (so you won't panic and sell if the price drops in the short term), and dig them up in two or three years. Someone will likely be willing to pay you a much higher price to take them off your Foolish dirty hands.

Fool contributor Dan Bloom owns shares of Solectron, but does not own any shares of any other company mentioned in this article. The Fool has a disclosure policy.