A Tech Becomes a Compelling Value

 | Jun 18, 2012 | 1:00 PM EDT
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I'm not sure whether yesterday was Father's Day, or Greek Election Waiting Day. I preferred the former, but there were a whole lot of dads whose minds were on the latter, and with good reason.

Frankly, I'm a bit tired of all of it. Greece is a train wreck; it was a train wreck a year ago, and it will still be a train wreck a year from now. And it is just the tip of the iceberg for Europe. But ultimately, this too shall pass. It may be painful for many, there will be fallout, but hopefully we all will learn something from Greece and other nations in Europe that have all but committed financial suicide, and get off the same path in the U.S. before it's too late.

Enough about Greece. There are cheap companies and compelling situations out there.

Benchmark Electronics (BHE) ended the week trading below net current asset value (NCAV) again; that's the fourth or fifth time this year that the name has been in net-net land. But this time it's a bit more interesting. Last week, the company announced another buyback, this one to repurchase up to $100 million in stock. That's in addition to the 2010 buyback program, which was also authorized up to $100 million in repurchases.

Buybacks can come with controversy. They've been used by companies in order to demonstrate to the markets that management believes shares are cheap. I've seen countless examples of names that get a bump upon the announcement of a buyback program. But the announcement of such a program and the dollar amount authorized for repurchase are meaningless unless the company follows through and actually repurchases shares. Saying to the world that your shares are cheap and that you are going to utilize some of the company's capital in order to buy back shares is one thing; actually following through is quite another. Some companies don't.

In Benchmark's case, it appears that the company is following through. Between year-end 2009 and the first quarter of 2012, the company has reduced shares outstanding by nearly 7.3 million shares, or 11%. Year to date, Benchmark has repurchased 1.345 million shares for $19.5 million, or an average cost of $14.50, slightly above the current price of $14.21. The company still has ample cash, nearly $257 million, to keep this going.

While I'm not against buybacks and typically see them as mildly positive if there's follow-through, I'd love to see Benchmark also initiate a cash dividend. The combination of active buyback programs and dividends has shown compelling results for the companies that employ both. For about $8 million, Benchmark could initiate a quarterly dividend of $0.035; that would provide an indicated yield of about 1%, and the company would have the wherewithal to grow that dividend. Buyback programs can be faked. Dividends can't. The combination of both can be powerful.

Benchmark is currently trading at just under NCAV and 0.76x tangible book value, and less than 10x 2013 consensus estimates (for whatever that's worth). Since I already have Micron (MU), Electro Scientific Industries (ESIO) and Ingram Micro (IM) in the portfolio, I'm heavy small tech-related names, at least for this value investor. But I may need to finally make some room for Benchmark.



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