Electronic-connector manufacturers are reaping the rewards from a secular trend toward increased connector content across the board, with companies in the sector having almost agnostic exposure to the success of various OEMs and not levered to one specific company, says Steven O’Brien, Senior Analyst at J.P. Morgan.
“Connectors are used in any product or any device that has electronic signals, and that’s pretty much everything these days. In any given industry, electronic content is growing, there is no denying that trend,” O’Brien said. “All these companies broadly benefit from that trend.”
O’Brien points to Molex (MOLX) as his favorite electronic-connector company. He says the company has good exposure to the faster-growing end markets — such as wireless infrastructure and devices, and automotive — and it is trading at a discount relative to peers.
“I like [Molex] firstly because I think they have good exposure to some nicely growing end markets. And then secondly, they actually have the lowest margins in the industry,” O’Brien said. “I see some good margin upside as sales grow, and I believe they capture about 25% to 30% leverage on incremental sales dollars.”
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