A 5G + Semiconductor Play? Foxconn Stock Analysis

You all know that I love to track stock market trends.

One trend that hasn’t dominated headlines of late, but is still on my radar, is the 5G revolution.

Jessica Rosenworcel, acting chair of the Federal Communications Commission, said that the possibilities of 5G go “far beyond just the smartphone” at a recent Axios event. And I couldn’t agree more!

This technology will be key in developing artificial intelligence, machine learning and more.

Finding ways to invest early can lead to huge profits down the road. And that brings me to the stock research analyst Matt Clark and I highlighted in our most recent Ask Adam Anything YouTube segment: Hon Hai Precision Industry Co. (OTC: HNHPF), also known as Foxconn.

Watch the video now, or check out the highlights below:

What Foxconn Does

Foxconn has a long history. Founded almost 50 years ago, this large, Taiwanese manufacturer has more factories in China than any other country. But you can find its factories in over a dozen different countries —including one in the U.S.

Foxconn is a contract manufacturer. It doesn’t manufacture its own design products. If you see an iPhone, it says that it’s designed in California and manufactured in China. That’s what Foxconn does: It manufactures other companies’ goods on a contract basis, including Blackberries, iPads, iPhones, Kindles, video gaming consoles and more.

Foxconn is going to be integral to the 5G movement. It’s working with electronic hardware around the 5G devices, as well as semiconductors.

It’s moving into the high-end semiconductor manufacturing space as well. That’s a good reason to look at it now because we have this chip shortage. You see a lot of new cars sitting on the lots that can’t be sold because they’re still waiting for their chips to come in. So, now is the time to look at the chip manufacturers, and perhaps Foxconn is one of those.

Standard Foxconn shares trade on the Taiwanese Stock Exchange and also on the London Stock Exchange. You can buy them over-the-counter in the U.S.

Is Foxconn a 5G Stock to Buy?

This stock requires due diligence. I saw two different over-the-counter ticker symbols when researching this stock. The person who wrote in and asked about Foxconn quoted the ticker symbol, HNHPF. But I also found the ticker symbol, HNHAY. So, check with your broker and see which one is more liquidly traded.

We have rated this stock on the Green Zone Ratings model. This particular rating is for HNHAY. It’s overall rated a “Strong Bullish” 88 out of 100. Let’s break down the six individual factor scores.

Foxconn stock’s Green Zone Rating on August 5, 2021.

The two worst scores for Foxconn stock are size and momentum. Foxconn is a huge company, so it’s going to get a lower size rating at 27.

It’s not in a strong uptrend right now. It’s been pretty choppy for a number of years, so it gets a 49 out of 100 on momentum.

However, it gets very positive scores on the other four to six factors. So, volatility, it’s rated 96 out of 100, which is excellent. Value, it’s rated 96 out of 100. Again, excellent. And then, it gets very solid scores of 70 and 74 on quality and growth.

Looking at some of the individual metrics that give Foxconn those high ratings, we have a price-to-earnings ratio of 6.5, very cheap. Its price-to-book of 1.24, is also very cheap. And its price-to-sales and cashflow are even more favorable.

For its net margin, it’s about a 2.2% net profit margin, which is slim. But that’s to be expected in a contract manufacturer. Its current ratio — its ability to pay its debt-servicing fees — is great as well. Its inventory turnover is good. It has a rather low CapEx as a percentage of its revenue, which is actually good as well. And it pays a dividend equal to about a 3.6% yield.

The numbers look good.

Overall, I would say that with a Strong Bullish rating, it’s certainly worth a look. But a company this large and controversial requires some due diligence.

Foxconn Isn’t Perfect

You’ve seen controversy over Foxconn’s working conditions. There’s the factory fire and a number of tragic deaths related to that. There are also suicides related to the working conditions.

A lot of people are upset about the plant in Wisconsin as well. Foxconn came over to the U.S. promising around 13,000 new jobs. When all was said and done, it was more like 1,400. It was an example of over-promise and under-deliver, as is often the case with companies that want to come into the market and get tax incentives and promise jobs.

Bottom line: With an 88 out of 100 rating, it’s worth looking into. I haven’t done the due diligence that I would require to fully vet and recommend the stock, but Foxconn is a high-end electronic manufacturer, which is going to get a lot of demand from 5G and the chip shortage in general.

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To good profits,