[Beginning of Cramer's verbatim comments for this segment...]

Jim:        I am liking tonight’s show… a little different… with the economy bouncing back and technology companies taking the lead… I think that it is time to get behind a new group… it is called the Electronics Manufacturing Services Group or EMS… these are companies that do outsourced manufacturing for the big businesses that design and sell all kinds of tech goodies… that is right… gadgets… every since the tech downturn at the turn of the millennium, we have seen more and more companies in the electronics industry… Sony, Cisco, Hewlett Packard, two that I own for my charitable trust, ActionAlertsPlus.com… Phillips, Nokia, Research In Motion, the list goes on and on… they outsource the actual manufacturing part of the business to Electronics Manufacturing Services companies… these EMS companies frankly are not great businesses much of the time… because they have high fixed costs, and lower margins… what they get after selling… but when the economy is recovering like it is now… and more and more people are buying electronics… that is what I felt after I read the Best Buy quarter… especially with the mobile internet tsunami upon us… you are getting a sweet spot here… where the electronic manufacturing contractors are fabulous buys… there is more demand… and for the components that have to be built… you turn to these companies...

But I do not want to back the entire industry… I want to know which of the many contract manufacturers is the best horse to ride… so tonight we are doing a little merger of fundamentals and charts, we are going off the charts taking a look at the major players in the industry… and they are Flextronics, Jabil, Sanmina, Celestica, and Benchmark Electronics… to find out which is best… but because we are chart oriented in this segment… I want to know which had the best chart first… so I consulted Dan Fitzpatrick, he is our go to chartist, and my colleague at RealMoney.com, part of TheStreet.com where I am chairman… unlike Apple and the accountants, I think the charts are smart as a whip when you have a guy like Fitz interpreting them.

His verdict…

Flextronics International Ltd. (FLEX)… I have got to tell you, sometimes my heart stops when I see a chart this beautiful… I mean this is the Mona Lisa of charts… okay, and I waited in that darn Louve for two hours to see something, was not nearly as good looking as this… this is everything you want to see in the classics of art… FLEX is the best… here is why… it is just a bit extended above of its 50 day moving average… a short term measure of its trajectory… a level where you expect some pullback… but the stock is just not pulling back… it is not letting people in… because the momentum is so powerful.

Second, FLEX has historically bottomed at its 50 day moving average… as you can see here, the last five times that it has come close to that line… it has bounced… currently that key moving average is at $5.40... so that is as low as Fitz thinks this $6.92 stock is likely to go… how about the upside… the stock broke down at $8.60, right here last year… 24% higher than it is now… Fitz thinks FLEX can run that much before the chartists turn against it… I like that risk reward… I want these points… I want you to make these points… but you know that I do not like to rely exclusively on the charts, the technicals… I like the fundies on my side in case the technicals turn against us.

So, based on the fundies is FLEX the right play… or is there another electronics manufacturing services stock that looks better than Flextronics… man that thing is like a pornographic, whew!… Sizzling… anyway, before we can answer the question we need to know how to evaluate these outsourced electronics manufacturing service companies… how do you compare the stocks in this industry… .like I would at my hedge fund… how do you pit them against them against each other in a bit of a Mad Max Beyond Thunderdome death match… where the whole industry enters and only one stock leaves… all of these EMS companies operate with very similar business models so it easy to compare them on an apples to apples basis… not to be confused with apples to apples that I showed you earlier in the show.

They are largely commodity based… they do not make proprietary products, they are basically all plain vanilla.. .we have got to keep a close eye on what is known as their utilization rates… how much capacity is being put to work and how much is sitting idle… we want to see which one has the most potential for growth by comparing what is known as their end market exposure… new customer wins… and their ability to grow into more service oriented businesses with higher margins… remember, lemons to lemonade… who can make the most lemonade out of the lemons… based on these key metrics, I have got to tell you… Fitzpatrick’s chart work is spot on… FLEX is also the best investment… look out, this is a genuine case where the charts and the fundamentals align.. and when that happens the sky is the limit.

Why Flextronics… okay, let’s start with the potential downside… customer concentration… this one has the lowest among its peers… the top ten customers represent only 46% of its revenue … Celestica is really clustered, 70%… 59% for Jabil, 48% for Sanmina… FLEX has the most diversified customer base… that limit’s the damage that any one customer can do by cutting back on its business… that has historically hurt these companies… FLEX is running at about a 60% or 70% utilization rate… I know that is not high, but it is higher than its competitors… and these companies earn more and more money on their sales the higher the utilization rates are as the economy comes back… these guys are going to print money… business model has high fixed costs… that is what happens.

FLEX also has the most exposure to the networking and telecom sector… 33% of sales… we know this is a major growth area, thanks to… and I am not going to stop, the mobile internet tsunami… why else do we like FLEX… diversified geographic exposure… 33% of sales coming from… you guessed it… the peoples republic of money… 15% from Mexico, 15% from the US, 8% from Malaysia, 6% from Hungary, 22% from everywhere else… that is good… plus the damage from its struggling customers like Nortel, Sony, Erickson… it is already in the stock… and yesterday’s very positive Deutsche Bank conference, FLEX has said that these two companies have gone from making up 25% of its revenues in the June quarter, to less than 10% this quarter… so FLEX has already been thru much of the adjustment… and the effect of these struggling customers is being offset by ramping new programs from stronger customers… Research In Motion, Mark Hurd’s Hewlett Packard… in the contract electronics manufacturing business the strength of your customer is hugely important… you live and die by their successes and failures…not your own.

FLEX has a great lineup with Cisco and Hewlett Packard now… two of its top three customers… that is why this chart is so pretty… when it comes to growth, Flextronics recently announced a launch of a notebook research and development facility in Taiwan… they are working with Dell, which has gotten hotter of late… and Hewlett Packard, to crack into the $100b notebook market… and as was pointed out in yesterday’s Deutsche Bank conference, a lot of investors think of Flextronics as a volume oriented company with a lot of consumer products… but it also has a pretty big high end business that makes up 60% of its sales… that is the kind of exposure that we want to see.

Flextronics end markets that are mostly strong, in its most recent quarter… its telco infrastructure exposure, that is 32% of its sales… that was flat vs. the previous quarter… but it made up a good portion of the companies total decrease in inventory… that is good… its computing business, 19% of sales… grew 11% from last quarter… nice growth… mobile business, 21% of sales… up 7% thanks to the new customers… again, that is Research In Motion… its consumer digital business at 11% of sales, grew by 16%… that is the strength of liquid crystal display TV’s… only its industrial, medical, and automotive segment was down 7%… but here FLEX has less exposure than its competitors… only 17% of sales… everything else is going great guns for a stock that is rather cheap when you think about it.

Even though I think that FLEX is the best company in the sector… it is the cheapest stock… the stock is trading at 12 times earnings… 12.1 times earnings, that is 2011 earnings... it is a major discount to the other peers… that are all over the map… trading from 14 times earnings for Celestica… 97 times earnings for Sanmina… this despite Flextronics having an explosive 46% growth rate… do not be put off by the fact that this stock is indeed up 257% from the March lows… this industry is on fire…no one is talking about this industry… no one… FLEX is the best way to play it.

Here is the bottom line of this gorgeous chart…

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The Bottom Line!:     The charts and the fundamentals agree… the way I see it, Flextronics International Ltd. (FLEX) is the best of the electronics manufacturing services companies.. this is the best house in a sizzling neighborhood.

[verbatim recap]

[end of segment]

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