Now we have a uniformly speculative thought: take shares of the technological industrial company TE Connectivity (NYSE: TEL), to profit from the industrial boom.
Growth potential and duration : 13,5 % behind 14 Months; ten percent a year for fifteen years. All excluding dividends.
Why stocks can go up: for the company's products, there is and will be a demand.
How do we act: we take shares on 149,67 $.
The idea was invented by Nikolay Valyukh in a publication about smart cars. Suggest your thoughts in comments.
Sources were used in the development of the material, hard-to-reach for users from Russia. Putting our hopes on, Do you understand, what to do.
What TE Connectivity makes money on
TE Connectivity produces detectors and electrical connectors – all this is necessary for the production of complex equipment. In accordance with the annual report of the company, its revenue is divided into subsequent segments.
Transportation Solutions - Fifty-six percent. By type of customers, the revenue of the sector is divided as follows:
- The automotive industry is seventy-two percent.
- Commercial vehicles – fifteen percent. From agricultural machinery to buses.
- Detectors for various industries – thirteen percent. Automotive industry, transport, medicine, aerospace and defense branch.
IN 2020 year due to the loss of the price of intangible assets, the sector was unprofitable, its operating margin was -1.4 % from its proceeds. However, in the "pre-war" 2019 the segment's operating margin was 15,7% from its proceeds. In the last quarter, the segment showed a profit: operating margin was 19,11% from its proceeds.
Industrial solutions — 31%. By type of customer, the segment's revenue is divided as follows:
- Aerospace, defense, oil and gas — 32%.
- Industrial equipment - 30%. For the most part, these are solutions in the field of automation..
- Medicine - 19%. These are both diagnostic solutions, and for treatment.
- Energy - 19%. These are goods for power grids in housing and communal services.
Segment operating margin — 11,1% from its proceeds.
Communication solutions — 13%. The segment's revenue is split as follows:
- Data & Devices — 60%. This is what, what you need for data centers and wireless connection.
- Household appliances — 40%.
Segment operating margin — 13,5% from its proceeds.
80% Sales company makes directly, 20% — through resellers.
Company revenue by regions:
- Asian-Pacific area - 35%.
- Europe, Middle East and Africa - 35%.
- America - 30%.
The largest by revenue of the country:
- China - 20,2%;
- Switzerland — 23,64%;
- USA - 27,5%.
Arguments in favor of the company
Industrial growth. Key markets for the company - in the US and Europe - are now experiencing industrial growth. Therefore, we can expect an increase in orders for the company in the short term..
But if you look at the longer term, then we can expect a rapid increase in sales of the most high-tech segments of the company. In this direction, we can expect great success..
In general, the prerequisites for growth are the same., like the similar company Amphenol, as in the short term, and long-term: TE Connectivity is now playing into the hands of the world's industrial boom. In the long term, TE Connectivity will benefit as a manufacturer of products for high-tech industrial segments.
Buy another day. In absolute numbers, the company is very expensive: capitalization - 49,09 billion dollars, — so it's hardly worth counting on, that someone will buy it soon. But if you focus on the long term from 5 years and more, then one can hope, that the company will be bought by some large industrial conglomerate, while the demand for its products will grow.
What can get in the way
Toy cars. A significant share of the company's revenue comes from the automotive industry. So the shutdown of factories in different countries due to a shortage of chips can have a very bad effect on reporting..
Quarantine threat. The company's business proved to be vulnerable to full-scale quarantines 2020, although the company survived this harsh time without terrible losses.. So if serious quarantine happens again, then this will negatively affect TE Connectivity reporting.
Labor cost. The company's factories are scattered around the world, as well as her clients. In the context of rising prices for transportation around the world and the congestion of ports in the same China, you should be mentally prepared for this., that this will affect reporting – as well as an increase in the cost of labor and raw materials.
China. China is an important market for the company. There has recently been a slight industrial recession., and this may have a negative impact on TE Connectivity's revenue in that country and overall financial result.
Dividends. The company pays 2 $ dividend per share per year, what gives now 1,33% per annum. About the same, how much does the S index give on average&P 500, so don't expect dividend investors to flock to these stocks.. At the same time, dividends can become a problem.. TE Connectivity uses payments 666 million dollars per year - approximately 39,17% from her profits for the past 12 Months.
Company 10,896 billion dollars in arrears, out of which 4,662 billion needs to be repaid within a year. There is not much money at the disposal of TE Connectivity: 1,416 billion in accounts and 2,985 billion of counterparties' debts. And if something goes wrong, then payouts can and cut, which will certainly lead to a fall in shares. At all, the most likely reason for cutting payments seems to me to be an increase in spending on expanding the company's business. And in the long run, such a large debt does not look very good in the context of rising rates and rising loan prices.. Even the most unreasonable investors will surely take this fact into account., and it won't brighten up TE Connectivity in their eyes..
Price. Stocks are now trading near historic highs.. They've grown a lot in those few years., although the company's success did not particularly correspond to such growth rates of quotations. If one or several risks are realized at once, then stocks can fall hard, when investors start to sell them, because the company will not live up to their short-term expectations. Although in relative numbers TE Connectivity is not very expensive: her P / E is 29,35, cheaper than many competitors such as Amphenol and Honeywell.
What's the bottom line?
Shares can be taken now, and after that there are two ways:
- wait, when stocks exceed historic highs and begin to cost 170 $. I think, what will it take 14 Months;
- hold shares 15 years. At such a long distance, it becomes very likely to buy a company by someone larger.. Also during this time, TE Connectivity will be able to fully realize its potential as a component supplier for the economy of the future..
But still I advise you to look at the news on the company's website.: may be, will be able to sell shares before then, how the market will react to the cancellation or reduction of dividends.
