In my last Sanmina (SANM) article on July 15th, the share price was around $1.10 and then moved to a high of $2.66, which proved to be considerably more than the 50% move I predicted. At the time of my article, SANM had $1.63 cash per share. It now has $1.84 per share. Over the same time period, the book value is up to $2.24 from $2.18.
With the recent pull back to $1.39, once again SANM has become a great buying opportunity. It is a growth company that is priced less than even the value plays in today's market. Gross margins increased over 20% year over year from June 30, 2007 to June 30, 2008 and sales increased significantly. Also, management has done a commendable job of increasing its inventory turns. To the lay person, all one needs to know is that these items makes SANM an extremely undervalued company.
Market Action on Friday October 3, 2008
In the last ten minutes before the market close on Friday, there was a huge volume surge in SANM in the order of more than 10 million shares. Sources state that this was partly due to a rumor that Singapore Flextronics (FLEX) may be in talks with SANM. Personally, I don't buy much on rumors, but rather I buy for value. The takeovers often follow because other companies often see the same value I see.
The Analysts
Last month, Cowen analyst Lou Miscioscia lowered estimates on the entire sector. However, Cowen still maintains SANM's rating at "Outperform."
They cut September 2008 FY EPS estimate a measly penny to 19 cents from 20 cents. He also cut FY 2009 to 25 cents from 28 cents. Even with the 25 cents, the company is trading at under 6 times forward earnings. And, Miscioscia's estimates imply at least a 30% earnings growth rate.
Recently, RBC analyst Amit Daryanani, cut the sector and FY September 2009 EPS to 24 cents from 29 cents. Again, another analyst places the forward P/E under 6.
Interesting to note, is that Daryanani lowered his price target on 6 of the 7 companies he downgraded. But, for SANM, his target remains at $2, even after the downward revision.
VectorVest a conservative stock analysis system calculates a current Value of $2.57 per share. VectorVest value is computed from forecasted earnings per share, forecasted earnings growth, profitability, interest, and inflation rates.
Value increases when earnings, earnings growth rate and profitability increase, and when interest and inflation rates decrease. VectorVest advocates the purchase of undervalued stocks At some point in time, a stock's Price and Value always will converge.
The Game Plan
SANM is still one of the most undervalued stocks trading on the NASDAQ market. I have started my re-entry into the stock after selling in the $2-$2.45 range. I am going to continue to add to my position as long as SANM is under $1.50 per share. However, my exit point is being revised lower given recent market turmoil. Although I believe SANM is easily worth its cash per share of $1.84, I will start exiting in that area, unless market conditions become substantially better.
Disclosure: Long SANM
