There are several ways a business can improve itself. Some of these include cutting costs, making operations more efficient, and expanding into new but adjacent markets. Another way is to focus on moving up the value chain…selling higher priced goods, which normally come with higher margins, to new or existing customers. And, simultaneously, divesting, or letting go of low margin operations.
That is exactly what TTM Technologies (TTMI) has been doing over the past year, and the strategy should start paying dividends in 2024. TTM is a manufacturer of RF components and RF microwave and microelectronic assemblies, and PCBs, or Printed Circuit Boards.
These are the electronic components that make data centers (think cloud and AI) run, and radar (think global conflict as well as global travel) run correctly and efficiently. These components are used in a wide array of industries, including data centers, networking, aerospace and defense, semiconductor manufacturing, and automobiles.
TTMI customers include NVIDIA (NVDA), Cisco (CSCO) and RTX Corp. (RTX), just to name a few. The company is global in scale, with almost 18,000 employees in over 25 facilities around the world. And TTM Technologies has been adding both products and customers as it moves up the value chain.
In its most recent quarter, TTM recognized a goodwill impairment charge of close to $45 million as it reset its radio frequency business and divested a low performing mobility business. Commenting on the quarter, CEO Tom Edman stated non-GAAP earnings were, “well above the guided range as a result of improved execution, particularly in our North America region and strength in our Data Center Computing end market.”
In the quarter, TTMI was able to repurchase 1 million shares of stock. And generated cash flow from operations of close to $59 million. The company was also able to announce that aerospace and defense revenue had topped $1 billion, from the $700 million level just two years ago.
TTM Technologies comes in at a B in our POWR Ratings with an overall score of 86.56%. In the component rankings TTMI scores well above average on Sentiment, where it rates above 97.68% of other stocks.
By moving up the value chain in its products, TTM is increasing both customer spend, as well as customer satisfaction, as reported by the company, with its best customers.
Another company making strides in the electronic manufacturing industry, and set to have another good year in 2024, is Eltek (ELTK). Eltek makes PCBs, or printed circuit boards. The company is located in Israel, and despite the ongoing Middle East conflict has been able to maintain and actually increase production.
Addressing the latest quarter, CEO Eli Yaffe stated, “We generated $11.9 million in revenue, leading to a robust gross profit of $3.7 million and a net profit of $2.1 million. These exceptional numbers reflect the strong market demand for our products, underpinned by our efficient order selection, which strikes a balance between maximizing profitability and aligning with our production capabilities.”
Eltek’s products are used in a variety of industrial applications, including for power generation, telecom, and railroad and transportation systems. Eltek has been able to take advantage of the continued build out, and update of the power grid globally, providing efficient power management tools.
The company trades at a PE of 16, only .61 times sales, and has gross margins of almost 21%. The stock has been on a run in 2023, which should continue into 2024 as demand for its products is increasing.
Eltek has an overall B rating in our POWR Rating system. It is incredibly strong in the Quality component, where it scores above 99.28% of the stocks we track.
Both TTMI and ELTK come into 2024 with advantages in place. TTMI is in the midst of a restructuring, and a move upstream, while ELTK is seeing robust demand from customers and executing on its current plan. Both stocks could see profitable gains in 2024 as the year plays out.
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TTMI shares were trading at $14.23 per share on Thursday afternoon, up $0.02 (+0.14%). Year-to-date, TTMI has declined -9.99%, versus a -0.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA.
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