The Stock: Celestica Inc.
Recent price: $10.09
Trend: Although technology stocks can catch a cold like kids at daycare, when the economy's health is improved they offer investors exceptional growth opportunity. Performance of some of the marquee names in the space - Microsoft , Apple , Intel , for instance - has eclipsed the broad market since the March bottom. Currently, the S&P Technology Index is out-performing benchmark S&P 500 by 5% in the past three months, with the cyclical semiconductor stocks helping lead the way. Electronics manufacturing services firms are also showing a strong hand, with stocks like Flextronics International Ltd., Jabil Circuits, Sanmina-SCI Corp., and Toronto-based Celestica Inc.developing bullish price trends.
The Trade: There are relatively few large cap tech stocks listed on the Toronto exchange, and the relative weighting of Research in Motion tows the S&P/TSX Information Technology Index in its direction. But Celestica Inc. is a stock in the index that shows the most convincing price trend - it turned Stock Trends Bullish in early June when the share price was $8.36 and is now hitting a new 52-week high.
After suffering a tough fall from grace last year, dropping from its spring 2008 high of $9.88 to its March 2009 bottom of $3.36, CLS has regained all the lost ground. The stock reached the $10 mark last week for the first time since 2006 - back when it still had the blue chip lustre of membership in the S&P/TSX 60 Index (it was removed from the index in October 2007). The market capitalization of Celestica is now above $2-billion, a marker of the company's recovered status. Volume of shares traded last week improved appreciably after a summer of largely unremarkable trading. Investors playing the tech sector can buy this lesser-known name without the kind of brand and product risk associated with many high-profile consumer tech stocks.
The Upside: Shares of CLS traded above $28 in early 2004, a reminder that this stock was once trading at much greater earnings and cash flow multiples than it currently trades. Even when the stock peaked in May of 2008, in its last bull trend, shares traded at 21 times earnings. Currently, the forward price to earnings ratio is 13.4. The technical share price target of $12.50 to $13, the next long-term price resistance level, implies an expansion of the forward earnings multiple to at least 17. If the tech sector continues to deliver, CLS may be able to add another 30 per cent to its current price.
The Downside: Trend line support, along the 13-week moving average, is currently at $8.50. However, investors can also look for the price to hold near $9 - a risk of 10 per cent on a short-term pullback in the share price. In the event that the stock market stumbles in the coming month, investors buying CLS at this level should be prepared to weather the volatility.
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to http://www.stocktrends.ca/