The stock market has a tendency to focus on the very short-term and this can often create bargains with superior potential for long-term investors when their looking for stocks to buy now.
This appears to be what is happening right now with the electronic contract manufacturers.
I know it sounds like a mouthful, but this industry is worth a closer look for investors.
You see, the electronic manufacturing services industry has been sadly drifting along with the global economy. Demand for electronics has been held down by a lack of spending at both the consumer and corporate levels.
This combination of weak current business conditions and bright prospects for future growth has created some opportunities for investors to buy selected companies at bargain prices.
And now's the time to scoop them up.
That's because the industry is showing some signs of recovery as demand for some devices, most notably smartphones and tablets, is beginning to increase.
It's not just the mobile wave that'll push this industry into profit territory.
New opportunities will open up for contract manufacturers as the auto industry continues to add electronic features to cars and wireless companies turn toward smart antennas over the next few years. Both industries expect huge sales growth this year. For example vehicle sales are on track to reach about 15 million units this year - a 44% gain from 2009.
To play these areas of growth, here are two electronics stocks to buy now that will benefit as electronic contract manufacturers reap the rewards of increased consumer and business spending.
Our Best Buys: Two Electronics Stocks to Buy Now
Multi-Fineline Electronix Inc. (Nasdaq: MFLX) is a company that should do very well for long-term investors.
The company makes flexible circuit and component assemblies to customers around the world. MFLX is well positioned in the smartphone and tablet markets and has strong relationships with the major mobile companies. It has built a solid reputation as a contract manufacturer to the industry as a result of a willingness to commit capital to meet changing market conditions and better serve OEM (original equipment manufacturer) customers.
The market for smartphones is expected to grow globally by more than 20% a year and this provide a source of top and bottom line growth for this company. The tablet market is expected to be even more explosive with 45% annual growth for the next several years.
Even better: The company is not just relying on those two powerful markets...
It is planning to expand its services to include other consumer electronic device OEMs for devices like MP3 players, laptops and e-readers. It also wants to be involved in contract manufacturing for the exploding demand in the automotive and medical industries.
It has added manufacturing capacity and bought two new plants in China online last year. When overall industry conditions in improve, so will MFLX returns to investors.
In spite of the attractive prospects the stock is very cheap on several valuation measures. The stock trades at just 90% of its tangible book value and the company has one-third of the total market capitalization in cash on the balance sheet. Management has been buying back stock under a $1.1 million buyback plan.
So far they have purchased 564,000 shares of stock and have a plan in place to buy the remaining shares. Insiders have been buying shares recently by exercising options and keeping the accumulated shares of stock.
The future is bright and the stock is cheap. Long-term investors should give the shares serious consideration.
Our second electronics stock to consider is Kimball International (Nasdaq: KBALB), one of the more intriguing companies in the electronics contract manufacturing business. The company already has a strong presence in markets such as automotive and medical devices that are expected to show strong growth over the next few years. The electronic manufacturing services (EMS) business is showing strong signs of improvement with sales and earnings growing as profit margins expand.
Unfortunately, this has been hidden by the fact the company also owns a division that sells furniture to the office and hospitality industry. The federal government is a large customer and those orders saw a double-digit year-over-year decline. This business should also start to improve in the second half of the year and add to the strong gains being delivered by the electronics division.
The stock is exceptionally cheap right now. Kimball shares trade hands at just 80% of the tangible book value of the company. The stock has an EV/EBITDA ratio of 5 and fetches just 6.5 times cash flow, well below the average company in today's slightly overheated stock market.
Insiders own more than 10% of the company and have a vested interest in seeing the stock price higher over the next few years. As the furniture business stabilizes and the electronics division's growth continues to accelerate it is not unreasonable to think the company could double back in value and climb back to the previous high levels.
For more stocks to buy now that will rise with an improving economy, check out The Best Shipping Stocks to Buy Now as the Sector Delivers High Yield, Gains
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