Part of my process for uncovering new stocks involves screening with a computer, where I narrow the S&P 1500 to two dozen candidates based on factors like growth, profitability, or price. I then investigate each company to see what stands out. One such candidate appeared on two of my screens simultaneously last week, and that only happens a couple times a quarter. The stock is Celestica Inc. (CLS), notes Adam Johnson, editor of Bullseye Brief.

Digging deeper, I found that other stock pickers like CLS, too…AND that the company is a partial bet on Artificial Intelligence. CLS designs, assembles, and maintains enterprise-wide computer platforms that help companies run their business, improve customer sales…and increasingly…leverage the power of AI.

Historically, the company has focused on low-margin hardware and wiring, but complexes associated with AI necessitate a broader approach which incorporates software and consulting. This is very exciting because it increases profit margins and is already accelerating earnings growth. 

(Editor’s Note: Adam Johnson is speaking at the 2024 MoneyShow Toronto. Click HERE to register)

Curiously, the stock’s mid-teens P/E ratio still reflects a hardware-type valuation, but I believe that’s changing. Its appearance on several momentum lists, accompanied by new purchases from hedge funds and institutional investors, signals that Wall Street sees Celestica as a way to leverage AI. This should propel the multiple several turns higher, resulting in new highs for the stock.

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Celestica has been blessed with good news over the past several months… lots of good news. Just last week, Investor’s Business Daily (IBD) added CLS to its widely followed IBD 50 List of top momentum stocks. Notably, it joined at position #3, behind only Nvidia Corp. (NVDA) and Hims & Hers Health Inc. (HIMS).

The company has seen multiple buyers of stock, including a new #1 shareholder that bought its entire 7% position in Q1. Five of the other top ten holders also bought during the quarter, and recent 13F filings reveal that five hedge funds now have at least 5% of assets in Celestica. Rarely do so many positive signals align…and the stock is cheap at 16 times earnings.

Recommended Action: Buy CLS.

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