The wholesale electronics industry is a bit hidden from the public because it caters more towards professionals. This is a good thing, since it presents some opportunities to get into a good deal on a company that isn’t as closely followed as more mainstream businesses. Let’s see some potentially great deals and suss out their real values.
Good value in a lesser-known business
Arrow Electronics, Inc.(NYSE:ARW) has ranked in the top 200 of the Fortune 500 list, and has passed $20 billion in annual sales several times in the past few years. Having operated since the 1930’s, Arrow Electronics, Inc.(NYSE:ARW) has shown that it has staying power and can adapt to changes in the consumer tech marketplace. While not many people buy used radio parts anymore, the computer division seems to be working well around the world.
Normally, I don’t like acquisitions because they provide the illusion of growth without actually expanding the company’s market position or adding value to the shareholders. In Arrow Electronics, Inc.(NYSE:ARW)’s case, however, their acquisitions have brought them solid management, like getting CEO Michael J. Long from acquiring Lex. Arrow has also used acquisitions to solidify its hold over reverse logistics, which is a hugely growing industry because it is an environmentally friendly way for companies to cut their costs and keep their equipment operating longer.
The only issue I have with Arrow Electronics, Inc.(NYSE:ARW) is that its 2.3% profit margins are a trifle slim. However, in this instance I’ll give that a pass, since the earnings multiple as of this writing is still only slightly higher than 9. Since the company is trading at just slightly over its book value, I’d call Arrow Electronics, Inc.(NYSE:ARW) a potentially solid buy. If the profit margins could be strengthened and a dividend could be paid, this would be a slam dunk.
Running with the big dogs
Avnet, Inc. (NYSE:AVT) is quite possibly the world’s biggest franchise-based electronic component and subsystem distributor. Working as a major partner to International Business Machines Corp. (NYSE:IBM) and providing parts to many manufacturers, Avnet, Inc. (NYSE:AVT) has a strong contractual moat going for it. I also like that the company doesn’t have to cater to the fickle consumer market, allowing the marketing expense to be shouldered by the better-known companies Avnet, Inc. (NYSE:AVT) works with.
Avnet also works in 34 countries. This has a great benefit because the company can use currency differences and inexpensive labor to directly control its operating costs. Vertical integration is a great way to keep the company profitable through difficult circumstances. This is even better because Avnet, Inc. (NYSE:AVT) makes use of franchises, keeping many of the daily working costs off of the main company’s back. So the 1.8% profit margin Avnet, Inc. (NYSE:AVT) is pulling doesn’t overly worry me. This company shifted during the Great Depression and didn’t skip a beat during the Great Recession, so it’s got staying power.
Trading at around 10 times its earnings and just over its book value, Avnet does seem to be a good deal.