By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 12/23/10 Sign up for free Cabot Wealth Advisory e-newsletter
I believe Arrow Electronics (ARW) will rack up big gains for you in 2011. It’s a Benjamin Graham undervalued stock with low price-to-earnings and a low price-to-book-value ratio.
Arrow Electronics, founded in 1935 and based in Melville, N.Y., is the second largest distributor of electronic components and computer products. The company is the distributor for 900 suppliers throughout North America (48% of sales), Europe and Asia. ARW offers wide-ranging customer technical support and service. Recent restructuring efforts have reduced costs and increased profitability.
Revenues increased 21% and EPS soared 113% during the 12 months ended 9/30/10. Stronger growth in Asia, astute acquisitions, and lower costs contributed to the exceptional sales and earnings results. Total sales will increase by a minimum of 10% and EPS will increase 25% during the next 12-month period. Growth could exceed our estimates if the economy picks up and acquisition costs diminish. We expect Arrow to purchase Nu Horizons Electronics before the end of 2010, which will add to EPS in 2011 and provide faster growth in Asia.
ARW shares are undervalued at 1.02 times book value and 9.7 times latest 12-month earnings per share (EPS). Strong demand in Asia coupled with ongoing acquisitions will enable ARW to expand more rapidly during the next two years or more. The company has not paid a dividend since 1986, but we believe dividends could be reinstated within the next couple of years. ARW’s balance sheet is strong with plenty of cash to fund future expansion. ARW is medium risk. Arrow presents a rare opportunity to buy an underpriced value stock with rapidly growing earnings.
I will continue to follow Arrow Electronics and other blue-chip, high-quality companies in my Cabot Benjamin Graham Value Letter. My next issue, coming soon, will focus on undervalued stocks with low price to earnings and low price to book value ratios. Click here for more information.
Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.
|Arrow Electronics (ARW)
50 Marcus Drive
Melville, NewYork 11747-4210
|Index Membership: S&P 400 MidCap, S&P 1500 Super Comp
Industry: Electronics Wholesale
Full Time Employees: 11,300