I have been reading about and watching TDK for a little while now. It first appeared on a stock screen I ran a while back. I frequently run screens for companies that have a low PEG Ratio (less than 1), have a 3-year growth history of 15-25%, and have a return on equity and price to book in top 60% of their industry.
TDK came up, so I plan to buy some for a long-term hold. I’m not recommending you buy this stock, because I don’t know if it’s a good fit for your portfolio, but I’m sharing my thinking process so you can learn about how we evaluate stocks (and investments).
Having a PEG (price to earnings growth) ratio less than 1 is a big deal. That means that we can buy growth for a low price. We have to dig into why it’s so low, but if it checks out it’s a good metric for screening stocks. Warning: Sometimes this means the market thinks the growth estimates are wrong!
Company Profile
Here is the company profile from Schwab.
TDK Corporation, together with its subsidiaries, engages in manufacture and sale of electronic components in Japan, Europe, China, Asia, the Americas, and internationally. The company operates through Passive Components, Sensor Application Products, Magnetic Application Products, Energy Application Products, and Other segments. The Passive Components segment offers ceramic capacitors, aluminum electrolytic capacitors, film capacitors, high-frequency components, piezoelectric materials, and circuit protection components, as well as inductive devices, including ferrite cores, coils, and transformers. The Sensor Application Products segment provides temperature and pressure, magnetic, and MEMS sensors. The Magnetic Application Products segment offers hard disk drives (HDD) heads, HDD suspension assemblies, and magnets. The Energy Application Products segment provides energy devices comprising rechargeable batteries, and power supplies. The Other segment provides mechatronics production equipment and camera module micro actuators for smartphones and other products. The company also engages in engages in insurance and real estate agency businesses. The company was formerly known as Tokyo Denki Kagaku Kogyo K.K. and changed its name to TDK Corporation in 1983. TDK Corporation was founded in 1935 and is headquartered in Tokyo, Japan.
Of course, I remember the company from when I used to make mix tapes in the 80s because they were a high-end seller of magnetic media — cassette tapes and computer disks.
Ratings & Metrics
Schwab gives them a C
Meanwhile, Zack’s gives them a rank of 1 (Strong Buy) and a Value Grade of “A”. Zacks says the company’s “improving earnings outlook” makes it “stick out” in their Zack’s Rank model.
Seeking Alpha, on the other hand, does not like the stock. It rates it as a Sell and gives it bad grades, particularly for downward earnings revisions. We looked through their info, and we think it is backwards looking, and we think the stock price (and valuation) now reflect those negatives (just like the rest of the tech market). Interestingly, on SeekingAlpha, they note that the Wall Street rating is Strong Buy (5.0)
The P/E Ratio is currently 18.23, Dividend yield is 1.56%, EPS Growth forecast is 23% over 3-5 years. Market cap is appx $20 billion on $14 billion of annual revenue, so it’s a mid cap stock.
The stock is below its 200 and 50 day moving averages (recent pullback in tech stocks), which I like because I’m looking at this as a value play. All it has to do is return to the mean and I make money if I buy it soon.
Summary and Punchline
I’ve read some negative info on the stock, but I think now is a good entry point, so I’m going to establish a small position. I should expect a little more volatility, so I will look to buy more on dips (especially if it drops more from here), but I think this is a good 3-5 year hold given the current value proposition.
