Apple Core #3 — Stocks Apple Can’t Live Without, cont.

Gardner's "top secret" printed circuit board maker revealed

By gumshoe, September 8, 2011

Yesterday we took a look at the “Apple Core” stocks, companies who have assets or products that the iPhone/iPad colossus can’t live without … and I promised that I’d catch up today and get into Apple Core #3, the one teased stock I didn’t get to in our initial sleutification work (if you missed that article, you can check it out here and keep up with the rest of the class).

So here are the clues:

“Apple Core #3: One American printed circuit board maker has a unique and cozy business relationship with Apple… hardly anyone recognizes this dynamic… but soon you will, and you’ll be positioned to cash in!

“Here’s the scoop: printed circuit boards are used in nearly every electronic device. They provide the base to support and connect other higher-tech electronic components so our gadgets can whiz, whirl, flash, and tweet.

“For the most part, these circuit boards are cheap and commoditized. But this little California firm has carved out a niche by providing slightly more specialized circuit boards for iPhones, iPads, and computer networking equipment…

“This company’s end markets are projected to grow well over 10% a year through 2014. And recently demand has been so strong this company is looking to add to its already announced facility expansion…”

I can’t say that I know anything about printed circuit boards, but they do make it sound impressive — 10% growth is nothing to sneeze at if it’s really as predictable as they imply.

So what is the stock? Well, first we get the warning that this is only for very special people …

“And the best way I know to get you started is to send you the LIMITED-RUN SPECIAL REPORT with all the specifics…

“Why is this a limited opportunity?

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“Well, out of respect for our paying members… many of whom may continue to increase their positions in these three stocks in the coming weeks and months… we’re committed to not overexposing these still little-known opportunities in the short term.”

Thankfully, your friendly neighborhood Stock Gumshoe has made no such commitments — though with our little group here there’s not so much of a chance that it will be “overexposed” unless it’s a really, really teensy stock. So who is it?

Well, it’s getting late but I did go out to the garage and give the Thinkolator a little extra gas, got it humming along nicely and fed in those clues … and it looks like we must be talking about …

TTM Technologies (TTMI)

Did I get that from the very limited pile of clues we had shoveled our way? Nope, there wasn’t enough detail … but I can get it from the fact that TTMI is one of the core suppliers of printed circuit boards for Apple, including for the iPad 2 as well as other products, and from the fact that the Motley Fool has been all hot and bothered about TTMI for years (and it is confirmed as being a past Motley Fool Stock Advisor pick). Just as a sum-up of some of their feelings about TTMI, you can check out this recent article from one of their analysts from after the stock cratered last month following a weak earnings report.

And yes, after that stock drop the shares look dirt cheap — though they’re not alone, pretty much all of their competitors look cheap, too, with PE ratios in the single digits and PEG ratios of well under 0.5, which is usually either a red flag that estimates are way too high or a sign that they’re huge bargains. Or, as in the case of the disk drive manufacturers a couple years ago, that analysts see a year or two of decent growth ahead but think the business is likely to collapse shortly thereafter thanks to either a dying business niche or a huge wave of impending competition that brings prices down and hurts profit margins.

Is that sensible in this case? I dunno — as I noted, I don’t know much about printed circuit boards. Being an Apple supplier is a mixed bag, in some ways similar to getting your products into Wal Mart for the first time — it’s a great way to generate big sales, but it sometimes also means that your pricing gets pressured by having one big, new dominant customer who can call the shots (especially if your product can also be made by several other competitors — as with printed circuit boards, of which the iPad 2 reportedly has seven authorized providers).

If TTM Technologies does indeed have an “in” and a special relationship with Apple, that certainly might help — and we’ll probably see all the teardown articles about the iPhone 5 shortly after it starts to be sold soon, which can sometimes move the share prices of some smaller suppliers who either do or don’t make it into the product, so I guess we do have some room for catalysts, especially after the stock took such a hit, but it’s worth noting that the reason for the hit was at least worries about future sales growth and the expected slump (or existing slump) in networking equipment, which is where most of TTM’s sales come from (Apple is the biggest single customer, but Cisco and their fellow switch and router makers aren’t that far behind).

So, your pick — bargain buy, or cheap for a reason? I’m pretty sure the Foolies are still excited and teasing it now, but that doesn’t mean they’re right … let us know your opinion with a comment below.

Full disclosure: As noted yesterday, I own shares of Apple personally and have a limit order in to purchase more shares if it hits my price. I do not own any other stocks mentioned, and will not trade in any stock mentioned above for at least three days.



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September 9, 2011 9:01 am

PCBs aren't subject to the same sort of paradigm shift that hard drives have been… there's no new technology on tap to replace them.

That said, it's a commodity business, there's not a lot of protection here. I assume that the more specialized work they do for Apple is related to wireless, either incorporating or at the very least minimizing interference. I would guess that most manufacturers are set up to just service the "everybody else"s, so TTM found a niche that worked for them… but (if my guesses are correct) there's plenty of room for competitors and no particular guard against them.

The competitive advantage that TTM enjoys is its existing relationship with Apple. That's certainly worth something, but just go in with your eyes open.

September 11, 2011 10:40 am

So what does the money flow say about this lovely TTMI? Too soon to go long. It would need a push to go brake the range. (9.15-11.50). What reason could one use to go long now- well it has relative strength. It is moving sideways while the market is going down. Above 12 a buy below 9 a short. Right here right now- nothing. I would wait to see if this one hits around 8 that would be a much better entry.

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