Sensata Technologies Holding N.V. (ST), Amphenol Corporation (APH): This Undervalued Tech Play Is Running on All Cylinders

I am not considering Amphenol Corporation (NYSE:APH) because of its huge cash drag and significant exposure to defense spending. Amphenol Corporation (NYSE:APH) has accumulated a record-high balance of cash and short-term investments amounting to $1 billion, and if it could not find accretive acquisition opportunities, this cash balance could be a drag on its profitability metrics like ROE. Also, it generated about one-fifth of its revenue from military and aerospace customers, which are susceptible to budgetary cuts.

TE Connectivity Ltd (NYSE:TEL) is the world’s largest connector manufacturer across all regions including the U.S., Europe, Asia and Japan. It initiated dividends in 2008 and currently sports the highest forward dividend yield of the group with a 2.2% yield. It raised the lower end of its fiscal 2014 full-year adjusted EPS guidance from between $3.05 to $3.10 on the back of better-than-expected revenue from its transportation solutions segment and improved margins.

Despite this, I am concerned about TE Connectivity Ltd (NYSE:TEL)’s weak performance for its telecommunication networks and sub-sea communications business. This is a result of telecommunication companies in Asia and Europe spending less on broadband networks equipment and lower project activity in the sub-sea communications market. Also, while TE Connectivity Ltd (NYSE:TEL) has delivered positive initial results from its restructuring efforts, I am typically wary of associated execution risks.

Conclusion

Sensata is dominant in the sensors and controls market because of high customer switching costs, sole-source supplier status and the mission critical nature of its products. It already boasts of a lean cost structure by virtue of its manufacturing footprint in low-cost locations,with sourcing being a key area of margin enhancement in the future. Sensata is undervalued on a relative basis, with the lowest PEG of 1.1 among its peers. I will advise investors to consider taking a position in the stock when it falls below 1.0 times PEG.

Mark Lin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article This Undervalued Tech Play Is Running on All Cylinders originally appeared on Fool.com is written by Mark Lin.

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