Time to FLEX Your Investing Muscles

Flex is a multi-national, $22 billion annual sales company that most investors are not familiar with. That's too bad. The firm posted decent growth from 2011 through 2019 while delivering a near double for continuous shareholders in exactly nine years. Fiscal 2020, which ends March 31, 2021, is likely to be a slightly down profit year due to virus-related factors. Analysts at both Value Line and Yahoo Finance, however, expect all-time record earnings per share for FLEX next year. A simple regression-toward-the-mean-valuation reversion could easily send FLEX back to about $15 by March 2022. That goal could prove overly conservative. FLEX topped out north of $19 in late 2017 and early 2018, years when EPS were on track to hit pretty close to what's expected for fiscal 2020, and well below FLEX's 2021 projections. I'm not alone in my take on FLEX. Yahoo Finance sees the shares reaching $14.57 by August 2021. That implies greater than 36% upside over the coming 12-months. Independent research house Morningstar calls FLEX a 4-star, out of 5, Buy. Morningstar deigns to provide year-ahead target prices. It does, however, let us know its view on present-day fair value for reach stock it covers. For FLEX, that figure sits at $13.06, about 22% above its Monday close. Merely reverting back to that present-day fair value over the next six to 12 months would provide very acceptable returns for all but the greediest among us. Over the next three to five years, Value Line sees the company's EPS ramping up to $1.80, supporting a projected price range of from $17 to $25, using just 9.4-times to 13.9-times multiples. Option savvy traders should consider setting up very conservative Apr. 16, 2021 $12 buy/write combinations. Buy/writes involve purchase of shares while simultaneously selling covered calls plus naked puts on the same underlying shares. Typically they utilize identical expiration dates. The screenshot below shows end of the day Monday quotes on FLEX and its April 2021 $12 options. I used a 1,000-share, 10-call and 10-put example, but those on a budget could be set up the trades with as little as 100 shares. When executed in a margin-type account, with excess buying power the money collected from the option sales can be used to help pay for the stock purchased. Come 4 p.m. on April 16, 2021, there are just two possible outcomes. FLEX will either close at $12, or higher, or below $12. If it's at least $12 the following best-case scenario will play out. Any upturn of 12.2% or better would translate into a fine cash-on-cash return of 67.8%, achieved over just 234-days. That's an annualized rate of greater than 105% due to the less than a two-thirds of a year holding period. How cool is that? If FLEX, fails to reach and hold $12 by expiration day the worst-case scenario spelled out below would unfold. You'd be forced to double the size of your position because of the puts exercised. An additional $12,000 would need to be ponied up as well. Those actions, though, don't necessarily mean you didn't make money. The average cost of your 2,000 shares would drop to under $9.58, about 10.5% below the trade inception price. Owning good-quality FLEX at that break-even level would have been a winning position around 90% of the time dating back a full half-decade. Much of that time FLEX traded between $12 and $19 on lesser fundamentals than are expected in the year ahead. A drop to $10.00 (-6.54% from the trade inception price) would leave buy/write combination owners with a small gain. Your 2,000 shares would be valued at $20,000 vs. a net cash outlay of $19,150. Making $850 on a stock that declined modestly sounds pretty good to me. If FLEX merely goes nowhere between now and Apr. 16, 2021, the final 2,000-share position could be immediately liquidated for $21,400 ($10.70 x $2,000). That would morph a static share price performance into a solid $2,250 gain. FLEX is not a homerun type of stock. It does, however, offer a chance to own tech for a single-digit valuation. Buy some shares, sell some puts or consider setting up a full buy/write combination.

Time to FLEX Your Investing Muscles

Here's how to play Flex Limited Tech while it's just 8.1-times next year's estimate.

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