Investment Holding Profile: FLEX Ltd.
With the Fed making headlines again, it's easy to get caught up in the extreme short-term market volatility. But it’s important to remember that when you buy a stock, you don’t own a ticker, you own a piece of a business. To distract you from the market's crazy swings, we are profiling the businesses that make up the largest holdings in our SMID Cap Core Strategy.
Today we’re highlighting FLEX Ltd. (FLEX), another top holding as of September 30, 2022.
FLEX Ltd. (FLEX)
FLEX Ltd. is an end-to-end manufacturer specializing in designing, building, and supplying products for other companies across the globe.
FLEX offers enormous investment potential as industry demand strengthens and business dynamics improve.
Due to the massive pandemic-related sourcing issues, companies are redesigning their supply chains. We believe FLEX will play a growing part in that redesign, helping companies source their products — especially as products become more digital and complex, such as digital healthcare solutions and electric vehicles.
Historically, the contract manufacturing industry has been very competitive, but these dynamics seem to be improving. The diversity of the customer base is increasing and manufacturers are creating various niches of expertise, leading to less head-to-head competition. Improvements in margins at FLEX (and other contract manufacturers) suggest that the shifting dynamics are translating into higher profits.
Management believes it can earn an EPS of $2.65 in three years after selling its NEXTracker solar business (worth $3 to $6 per share). With high single-digit sales growth, improving margins, and mid-teens EPS growth, we think there is room for multiple expansions.
While the improvements are encouraging, there is a chance business dynamics do not continue to improve as expected. Furthermore, FLEX’s business is economically sensitive. The stock could underperform if demand weakens in an economic downturn.
If you have additional questions about FLEX Ltd. (FLEX) or our SMID Cap Core Strategy, please contact us. Next time, we’ll profile our holding Affiliated Managers Group (AMG).
Investments highlighted were selected based on objective, non-performance-based selection criteria. Names are subject to change.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product or any non-investment related content, made reference to directly or indirectly herein will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. You should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from City Different Investments. To the extent that a reader has any questions regarding the applicability above to his/her individual situation or any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing.
Opinions and statements of financial market trends that are based on market conditions constitute our judgment and are subject to change without notice. Historic market trends are not reliable indicators of actual future market behavior. This material may contain projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved and may be significantly different than that shown here. The information presented, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Although the assumptions underlying the forward-looking statements that may be contained herein are believed to be reasonable, they can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. The Firm assumes no duty to provide updates to any analysis contained herein.
The objective of the SMID Cap Core strategy is to generate strong risk-adjusted returns in a focused portfolio of small and mid-cap stocks invested across the business life cycle. Portfolios invest primarily in U.S. stocks with greater than $100 million in market cap. Portfolios typically hold between 20-35 positions, with no position representing more than 10% of the portfolio. Not less than 80% of portfolio assets will be invested in companies whose market cap is within the market cap range of the Russell 2500 Index. The strategy may take on international exposure up to 25% of portfolio assets. An investment in the strategy is subject to certain risks. The value of an investment may fall as well as rise and is not guaranteed. Equities may decline in value due to both real and perceived general market, economic and industry conditions. The strategy could be more volatile than the performance of more diversified portfolios.
Visitors to the City Different Investments web and social media sites are asked to read these terms.