By Roger Choudhury
We searched for stocks in the hardware sector with the highest returns on capital in the sector relative to peers. We evaluated for consistency of profitability over the last 5 years. Here are the few companies that consistently outperformed their peers:
IEC Electronics (NYSEMKT:IEC) posted a ROIC of 8.4% and $107 million in revenues in the 12 months ending on December 31, 2010. Profit and EBIT margins were 16.8% and 7.09%, respectively. ROE was 20.5%. Ending in September, profit margins in 2010, 2009, 2008, 2007, and 2006 were 16.8%, 15.96%, 12.17%, 9.48%, and 12.17%. The respective EBIT margins were 7.3%, 6.96%, 3.2%, 1.23%, and 0.95%. The current ratio is 2.07 with a D/E of 1.48. Because the EPS is $0.51, this implies a P/E of 16.5. From October through December 2010, EPS grew 37.5% quarter-on-quarter, after having fallen 7.69% and 53.57% year-on-year in both fiscal years 2010 and 2009. The electronic manufacturing sub-industry has an average profit margin of 1%, ROE of 2.04%, D/E of 0.24.
The Company is a Rochester, NY-based contract electronic manufacturer. Clients hale from the military and defense, aerospace, medical, and industrial sectors. Notable customers are GE, Boeing, Foster Miller, and BAE Systems. IEC acquired GTC from Crane in December 2009, bolstering exposure to the military and defense sectors. It also bought Celmet in July 2010, providing vertical integration, and supporting all metal needs. It also added Southern California Braiding, which was the 2010 Marshall Space Flight Center Small Business Subcontractor of the Year, and 2008 Boeing Supplier of the Year.
Year-to-date, IEC shares are up 10.8%, and up 59.4% since January 2010. The market cap is $80 million.
IBM (NYSE:IBM) churned out $99.87 billion in revenues alongside a healthy ROIC of 29.55% in 2010. In 2010, 2009, 2008, 2007, and 2006, profit margins were 46.07%, 45.72%, 44.06%, 42.2%, and 41.89%, respectively. The respective EBIT margins came in at 19.75%, 18.9%, 16.1%, 14.67%, and 14.57%. ROE was 64.94%. The current ratio is 1.19 with a robust D/E of 0.95. EPS increased by 15.08% in 2010 to $11.52, and so the P/E is 13.9. The 30 day put/call ratio is 0.7. The IT consulting and other services sub-industry has an average profit margin of 4.09%, ROE of 12.13%, D/E of 0.36, and a P/E of 19.1.
IBM will pay out a $0.65 per share dividend on March 10. The current yield is 1.6%.
IBM said that it expects to deliver full-year 2011 GAAP earnings per share of at least $12.56. This gives a PEG ratio of 1.54.
Year-to-date, IBM shares are up 9.5%.
Apple (NASDAQ:AAPL) put up a ROIC of 36.8%, for the trailing 12 months ending in December 25, 2010, and also produced $76.28 billion in revenues. Profit and EBIT margins were 38.76% and 28.5%. ROE was 36.8%. Ending in September, profit margins in 2010, 2009, 2008, 2007, and 2006 were, 39.38%, 40.14%, 34.3%, 33.97%, and 28.98%.
The respective EBIT margins were 28.4%, 28.1%, 21.2%, 20.86%, and 14.59%. The current ratio is 1.85 with a D/E near zero. Apple shares trade under a P/E multiple of 19.1, given that the most recent annualized EPS is $17.93. EPS also grew 75.2% over the past 12 months. The 30 day put/call ratio is 0.7. Given the put/call ratio of below 1, most investors believe that AAPL is undervalued. The computer hardware sub-industry has an average profit margin of 7.57%, ROE of 30.1%, D/E of 0.42, and P/E of 16.5.
On Thursday, February 24, Intel introduced “Thunderbolt technology,” a new high-speed PC connection technology. Running at 10Gbps, this permits the transfer of a full-length HD movie in less than 30 seconds. This was developed in technical collaboration with Apple, and is available first on Apple’s new line of MacBook Pro laptop computers.
Within the past 5 days, AAPL is down 5.5%. To learn how much we think Apple is worth per share, see our recent article.
JinkoSolar (NYSE:JKS) reported 2,536 million yuan ($385.69 million) in revenues and a ROIC of 21.6%, for the trailing 12 months ending in September 2010. The profit and EBIT margins were 21.56% and 15.47%, respectively. ROE was 37.4%. In 2009, 2008, and 2007, profit margins were 14.68%, 14.27%, and 12.4%. The respective EBIT margins were 5.36%, 10.08%, and 10.7%. The current ratio is 0.98 with a D/E of 0.15. EPS is 2.68 yuan ($0.4075), yielding a P/E of 68.7. The 30 day put/call ratio is 0.4. The semiconductors sub-industry has an average ROE of 1.1%, D/E of 0.2, and P/E of 14.
The Company will report full year 2010 and Q4 2010 results on Monday, February 28. Over the past 5 days, share price is down 5.1%. The market cap for JKS is $2.4 billion.
JinkoSolar is a fast-growing vertically integrated solar power product manufacturer with low-cost operations based in China. Since its inception as a supplier of recovered silicon materials in June 2006, JinkoSolar has moved rapidly downstream by vertically integrating critical stages of the solar power product value chain to become a manufacturer and seller of monocrystalline and multicrystalline wafers, solar cells and solar modules. By September 2009, JinkoSolar shifted its business focus to the production and sale of solar wafers, cells and modules by efficiently taking advantage of its integrated business model.
Mellanox Technologies (NASDAQ:MLNX) showed a ROIC of 4.75% and $154.6 million in revenues in 2010. Profit m margins in 2010, 2009, 2008, 2007, and 2006 were 73.77%, 75.29%, 78.27%, 74.56%, and 72.12%. The respective EBIT margins were 15.06%, 16.6%, 23.37%, 29.8%, and 15.55%. In 2010, ROE was 4.8%. Current ratio is 12.17, and D/E is 0.12. MLNX trades under a P/E of 68.4 with EPS at $0.38. The 30 day put/call ratio is 3.5. The semiconductors sub-industry has an average ROE of 1.10%, D/E of 0.2, and P/E of 14.
On February 7, the Company completed an acquisition of Voltaire for $208 million. The latter is a leading provider of scale-out data center fabrics. This move strengthens Mellanox’s market leadership position as the premier provider of end-to-end connectivity systems. The transaction also enhances the company’s software products and services to serve a wider range of data center markets, including High-Performance Computing, financial services, database, Web 2.0, Internet and the Cloud.
The Company is a leading supplier of end-to-end InfiniBand and Ethernet connectivity solutions and services for servers and storage. Mellanox products optimize data center performance and deliver industry-leading bandwidth, scalability, power conservation and cost-effectiveness while converging multiple legacy network technologies into one future-proof architecture. The company offers innovative solutions that address a wide range of markets including HPC, enterprise, mega warehouse data centers, cloud computing, Internet and Web 2.0. Founded in 1999, the Company is headquartered in Sunnyvale, California and Yokneam, Israel.
Year-to-date, shares are trading relatively flat. The market cap is $880 million.
Altera (NASDAQ:ALTR) returned 35.5% on invested capital, and had revenues of $1.95 billion in 2010. From 2006 to 2010, Altera showed gross margins of 66.7%, 64.5%, 67.1%, 66.8%, and 70.99%, respectively. Also, in those years, respectively, the Company produced EBT margins of 27.98%, 26.7%, 30.66%, 25.56%, and 44.4%. The ROE in 2010 is 45.9%. The current ratio is 5.07, with a D/E of 0.22. In 2010, EPS grew by 196.4%, after falling 28.8% in 2009. ALTR closed 2010 with an EPS of $2.49. Shares currently trade under a P/E of 16.3, and have a 30 day put/call ratio of 1.7. Assuming a put/call ratio of 1, P/E should be closer to 9.6 for shares of ALTR. The semiconductors sub-industry has an average ROE of 1.10%, D/E of 0.2, and P/E of 14.
Altera is a global semiconductor company, serving over 13,000 customers within the Telecom and Wireless, Industrial Automation, Military and Automotive, Networking, Computer and Storage, and Other market segments. The Other market segment includes sub-segments of broadcast, consumer, medical and test.
Altera designs, manufactures, and markets a variety of products. Year-to-date, ALTR is up 14.6%. The market cap is $13 billion.
Mettler-Toledo International (NYSE:MTD) has a ROIC of 18.89%, and made $1.96 billion in revenues in 2010. From 2006 to 2010, the Company showed gross margins of 49.56%, 49.96%, 50.3%, 51.4%, and 52.7%, respectively, and respective EBIT margins of 15.62%, 13%, 13.48%, 13.5%, and 128.44%. In 2010, ROE was 31.3%. The current ratio is 2.1 with a D/E of 0.87. EPS grew by 35% to $6.80, implying a current P/E of 24.7. The 30 day put/call ratio is 0.5. The life sciences tools and services sub-industry has an average profit margin of 5.15%, ROE of 5.21%, D/E of 0.33, and P/E of 24.2.
The Company is a global manufacturer and marketer of precision instruments for use in laboratory, industrial and food retailing applications. It is geographically diversified with sales in 2010 derived 37% from Europe, 36% from the Americas and 27% from Asia and other countries. The Company has an extensive global sales and service organizations with approximately 5,500, or nearly one-half, of our employees providing sales and service in 35 countries. The Company has a manufacturing presence in Europe, the United States and China.
Year-to-date, share price is up 11.2%. The market cap is $5.4 billion.
National Semiconductor (NSM) drew in $1.56 billion in net sales with a ROIC of 19.12%, for the trailing 12 months ending in November 2010. The profit and EBIT margins were 69.04% and 26.14%, respectively. The ROE was 69.05%. Ending in May, the profit margins in 2010, 2009, 2008, 2007, and 2006 were 65.89%, 62.74%, 64.39%, 60.74%, and 58.97%. The respective EBIT margins were 18.9%, 7.78%, 23.9%, 27.49%, and 32.2%. The current ratio is 6.44 with a D/E of 1.78. EPS stands at $1.25 with a P/E of 12. The 30 day put/call ratio is 1.8. The semiconductors sub-industry has an average ROE of 1.1%, D/E of 0.2, and P/E of 14.
The Company is one of the world’s leading semiconductor companies focused on analog and mixed-signal integrated circuits and sub-systems, particularly in the area of power management. It has an extensive intellectual property portfolio that includes more than 3,000 patents. In FY 2010, 94% of sales came from analog products that are classified within the general purpose analog categories, which are amplifiers, signal conversion, power management and interface products, representing the fundamental circuits that electronic systems need in order to deal with continuously varying signals of the real world, such as light, sound, pressure, temperature and speed.
Q3 2011 results come out on Thursday, March 10. Year-to-date, NSM is up 9.3%.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.