Benchmark Has the Makings of a Star

Many companies are under the radar screen of public awareness, but some industries are that way, too. One of these is electronic-manufacturing services, or EMS.

These companies provide product design and engineering, product testing, manufacturing capabilities, repairs and other services to OEMs (original equipment manufacturers). Its products are used by manufacturers in such industries as computers, telecom and medical equipment.

One of the more intriguing players in EMS is Benchmark Electronics (BHE - commentary - Cramer's Take).

In the late 1990s when other EMS companies were expanding to meet the demands of the then-high-growth computer and telecom industries, Benchmark played it cool and did not build excess capacity. More recently, it announced the acquisition of Pemstar in October, which will lessen its dependency on two major customers. These are examples of how well management takes care of business.

The company does face some challenges. There is intense pricing pressure in the EMS industry, and Benchmark is highly dependent on two customers -- Sun Microsystems (SUNW - commentary - Cramer's Take) and EMC (EMC - commentary - Cramer's Take) -- for about 45% of its business.

But the company is doing well, and its stock, at about $27, seems reasonably priced. Plus, two guru strategies say it will be a top performer.

The Martin Zweig Strategy

The one negative about Benchmark, according to the Zweig strategy, is that annual revenue growth of 8.56% is not keeping up with earnings growth of 22.23%, based on the average of the three- and five-year historical EPS growth rates. But aside from this, Benchmark gets plenty of passing grades from this strategy.

For example, the strategy dictates that a stock's price-to-earnings ratio should be between 5 and 43. Benchmark fits nicely within this range, having a P/E of 16.

In addition, the company's recent quarterly sales growth is rising, current quarterly earnings are positive, and earnings growth for the past several quarters is up. The EPS growth rate for the current quarter, 40.63%, is greater than the historical growth, which is 22.23%, earning it another good grade.

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At the time of publication, Reese was long Benchmark Electronics, although holdings can change at any time.

John P. Reese is founder and CEO of Validea.com, an investment research firm, and Validea Capital Management, an asset management firm serving affluent investors and companies. He is also co-author of the best-selling book, The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback. Click here to send him an email.

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