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Risks Keep a Lid on Sanmina

Looking at the stock's valuation, shares of Sanmina were recently trading just below 14 times 2007 consensus estimates, which we view as relatively inexpensive at first glance.

However, analyst consensus expectations are predicting a less-than-1% increase in revenue this year, and it's difficult to pin down exactly when Sanmina might see a consistent rate (at least 10%) of sales growth in the future vs. analysts' projections of just 0.8% growth in 2007 and 6.6% in 2008. In addition, the company has yet to show that it can stop the market-share losses in its core operations.

Another factor that leads us to believe that Sanmina is a poor candidate for the Stocks Under $10 model portfolio is the simple fact that the potential upside isn't large enough to warrant a purchase.

Sanmina is highly leveraged to overall tech spending, meaning that shares will benefit if a lot of companies boost their capital expenditures, which generally occurs when the economy becomes strong. But at the present, the U.S. economy is in the midst of a slowdown.

So in this case, there are better opportunities than Sanmina -- especially looking around the rest of the under $10 arena -- that should provide nice gains in 2007. We prefer to focus on unique situations with a more company-specific thesis that could offer greater potential upside.
In keeping with TSC's editorial policy, Larsen Kusick doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Kusick is a research associate at TheStreet.com, where he works closely with Jim Cramer and works on TheStreet.com Stocks Under $10. Prior to joining TheStreet.com, he worked in options trading and management consulting. He appreciates your feedback; click here to send him an email.

Interested in more writings from Larsen Kusick? Check out Stocks Under $10.
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