Buyback Expert Bets on Tech

01/29/2014 8:00 am EST

Focus: STOCKS

David Fried

Editor, The Buyback Letter

David Fried, editor of The Buyback Letter, states that, "We've recently added two technology sector stocks to our buyback model portfolio; one is an integrated circuitry provider and the other is involved in design and logistics."

QLogic (QLGC), a server and storage component specialist, is a global leader and technology innovator in high performance networking. Simply put, it makes specific adapters and switches to enhance and manage computer data communication.

QLogic has more than 1,000 employees and fiscal 2012 revenue of $559 million. Based in Aliso Viejo, California, it is a cyclical tech stock, and it pays to remember that network service providers and enterprise providers constantly must upgrade their infrastructure to keep up with an extremely digitized world.

QLogic also has original equipment manufacturer (OEM) partnerships with some of the biggest networking and cloud players in the industry, including EMC, Cisco Systems, Hewlett-Packard, IBM, and Oracle.

Leading OEMs, which produce hardware to be sold under another company's brand, and channel partners worldwide rely on QLogic products for their data, storage, and server networking solutions.

These OEM contracts provide QLogic with relatively steady recurring revenue, which is the key to its profitability and predictable cash flow. QLogic has reduced its shares outstanding by 6.44% in the last 12 months.

Flextronics International Ltd. (FLEX) is an end-to-end supply chain company with more than $24 billion in annualized sales, generated from helping customers design, build, ship, and service their products through a network of facilities in more than 30 countries and four continents.

For example, it is the manufacturing partner of Google for the Moto X and Microsoft for the Xbox One. In September, Flextronics was assembling 100,000 units of the Moto X every week at its Texas facility.

Motorola management had stated that Flextronics is capable of assembling "tens of millions" of phones a year, if needed, suggesting that Google plans to stick to Flextronics as its manufacturing partner in the future. So, analysts weren't surprised when it chose Flextronics once again to manufacture the lower-cost Moto G.

Flextronics seems to have strong tailwinds behind it, and investors are counting on the shipments of these marquee devices to drive revenue. In addition, Flextronics' medical, automotive, and defense and aerospace businesses have been providing growth.

Positive trends in telecom and networking should benefit, as telecom carriers roll out faster networks in the US, and around the world, and more data centers are built. Meanwhile, management has reduced its shares outstanding by 8.35% in the last 12 months.

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