Now that decades have passed since the beginning of the computing and Internet revolutions, many tech stocks are trading at low valuation multiples. This fall from grace is apparent in how the stocks of the SPDR Technology Selector Fund (XLK) trade at an average 13.7 price-to-earnings ratio, lower than the 14.01 price-to-earnings ratio of the S&P 500 (SPY) fund stocks. Tech stocks have ceased being the darling of investors and the sector is valued more conservatively than the broader stock market.
Investors can seize this opportunity by reviewing the challenges faced by different tech stocks that are priced as value investments. Which are value investments, and which might be value traps?
iPhone 5 Supplier Woes
Supply constraints for the iPhone may delay payback of Jabil’s (JBL) ambitious capital expenditures. Seventy percent of Jabil’s 2012 capital expenditures were spent to accommodate production of iPhone 5 aluminum casings. This was a $337 million investment to help the manufacturer make components which could readily meet Apple’s (AAPL) high quality standards.
Though, the company’s revenue has gone up by 2%, Apple is demanding a much higher quality casing for the iPhone 5. This has lowered Jabil’s margins and caused its net income to drop by 28 percent. Apple needs to keep up with demand for the new iPhone model. Apple will probably become the source of most of Jabil’s revenues since the project is currently producing 45% of the products sold by the company. To continue reading, click here.