Value investor Robert Lyon thinks several tech stocks are ripe for picking: For the $13 billion portfolio he shepherds at Institutional Capital, one of the stocks he considers a "solid value play" is Solectron (SLR ). A top contract manufacturer of electronic equipment, Solectron saw its stock plunge from 42 in January, 2001, to 18 in August and to 9.65 by Dec. 21. Lately, it has inched up to 11. Lyon started buying when Solectron was at 10, confident that it would hit 18 in 12 months. The stock's runup will be driven, he says, both by the imminent end of the tech inventory correction and the incipient economic rebound. Although Solectron remains debt-ridden, Lyon is encouraged by its restructuring moves to cut costs and beef up its balance sheet.
Early signs of a snapback in outsourcing--in North America and Europe--should be a boon to Solectron, says Lyon. In Japan, he adds, the "outsourcing phenomenon is just beginning," and that should create a new market for Solectron, although the U.S. will remain the largest. Lyon expects earnings to start rising. He sees Solectron earning 25 cents a share in the year ending Aug. 30, 2002, and 65 cents in fiscal 2003. His estimates are conservative--lower than First Call's consensus figures. With Solectron's buoyant prospects and its stock battered, Lyon believes the potential rewards far outweigh the risks.
By Gene G. Marcial