Celestica Inc (CLS.TO)

(A Top Pick Nov 4/16. Up 9.44%.) This does not pay a dividend, but has a significant free cash flow generation. They also own property near the Science Centre which has been re-permitted for multiple use. A low, flat building that has been used for manufacturing, probably the largest chunk of real estate in Toronto. The underlying business is quite good. They are moving away from physical telephones and servers to medical and aeronautical devices giving higher profit margins.

A manufacturer for other manufacturers. When companies get busy, they give their excess runs to this company. Not a bad little company. However, this is a later cycle stock. They have been buying back stock aggressively and the balance sheet is very, very strong. As the market and the economy continues to advance, it becomes a later stage company as well. He likes the Tech sector overall. Earnings leverage is very, very good.

Essentially an outsource company. Other tech companies will go to them to either do some research on technology that they want developed, or build the technology for them. This is a company that can do well in a later stage economy, as demand is increasing for certain companies and they don’t want to build a new plant. Also, priced below its peers. The company is shareholder friendly where they have been buying back a lot of shares. They’ve done some restructuring and look like they are back on the growth path now. He likes this.

In the next 2 months, tech names should be a core part of your portfolio. Chart shows this has been pretty volatile, but it had 2 double bottoms in 2016, which is pretty positive. That was followed by a nascent uptrend. He is expecting the stock to come back in the next 2 months. The $17.50 will be bringing in a lot of buyers. (See Top Picks.)

CLS-T vs. MRE-T. It seems CLS-T has business picking up. but MRE-T is stuck in some kind of a glut that they can’t break out of. He refers CLS-T.

Contract manufacturers. They were manufacturing phones, and consumer products, which are now less than 3% of their total manufacturing. They do a lot of business in servers and other stuff, as well as branching out into medical and aerospace. Produced $215 million of free cash flow in the last 4 months, an 11% free cash flow yield. Has about $600 million of cash. 14.8% trailing ROE. Earnings per share grew by 50% on a 22% increase in sales. They also have the ability to free up some cash on some Toronto real estate. (Analysts’ price target is $16.33.)

(A Top Pick Aug 7/15. Down 6.9%.) The company has worked diligently to move away from hand sets and are now more towards servers, and more importantly towards medical and aerospace. If you can design into a pacemaker or an airplane, you’re typically there for 10 years. There is less price competition, better margins and less turnover.

Trades at 5.4X enterprise value to EBITDA, against a 22% EBITDA growth, which is cheap. With strong growth, this gives 2.5 EBITDA. Free cash flow up 55% over the last year. In the last 30 days, earnings estimates have been cranked up by 3%. A strong trailing free cash flow of almost 11%. 15% trailing ROE.

(A Top Pick Jan 2/15. Up 13.33%.)

It has good growth over the next few years and trades at a good multiple. There is nothing wrong with it.

$2.2 Billion Market Cap. A Contract Manufacturer for Computer Equipment, Servers, Communications, Healthcare and Aerospace. In Healthcare and Aerospace, it is a much longer contract to get designed into, but the advantage is that once you are designed in, you are good for 7 to 10 years, and margins are much better than in the electronic space. Have about $500 Million in cash, about 24% of the Market Cap. Looking at the Enterprise Value to Earnings, earnings are expected to be $2.26. This appears to be heading higher.

The period of seasonal strength is from December to April. Right now it is still looking very good. Technically it is in an upward trend, trading above its 20 day moving average, and its strength relative to the Canadian market is very, very strong. Even though it is past its period of seasonal strength, as long as it continues to outperform the market, stick with it. Watch your technical indicators. As they start to roll over in the corrective phase of the market, that is when you want to start taking money off the table. Stick with this right now, but watch it very closely.

(A Top Pick June 10/14. Up 15.4%.) He is very pleased with this. They end up doing well on free cash flow generation. Continuing to transition from commodities (cell phones). Their longer-term plan is to move towards aerospace and medical, where the margins are better.

He is not surprised they are doing a share buyback. It is inexpensive. They have no debt. It is one of these show-me stocks and he won’t get rid of them until they disappoint.

Not a business he would get excited about because it is very low margin, but the stock chart is good.