I’ve always been a fan of pick-and-shovel stocks—companies that provide necessary equipment or services to an industry but aren’t direct participants.

The term “pick and shovel” originates from the Gold Rush when pick and shovel sellers often made more money than miners.

I remember when the iPhone launched in 2007 and semiconductor stock prices—companies whose chips power smart devices like iPhones—went through the roof. One of Apple’s semiconductor suppliers, Skyworks, saw a 430% increase in stock price between 2013 and 2015.

Or Nvidia (NVDA), a company that produces AI-compatible chips for leading AI developers like Microsoft (MSFT), whose stock price has increased by 250% in the past year with the onset of AI adoption.

So, it’s worth a closer look when a company like Celestica (CLS) hits my radar with clients such as Dell, HP, Airbus, Boeing, Alphabet, and Meta. Granted, it’s not as sexy as Google or Microsoft, but when it comes to AI-driven revenue, it will profit the same.

This is my favorite pick-and-shovel stock for investors looking to profit from the AI revolution…

Celestica is one of my favorite AI pick and shovel stocks because it supplies key components and services, particularly microchips, to companies spearheading the AI revolution.

This stock’s biggest strength is its ability to manufacture chips crucial for AI applications. These chips are integral to AI development and will surge in demand as AI adoption spreads.

Another factor fueling the company’s growth is its booming industrial sector, whose revenue is up more than 30% year-over-year. Celestica offers comprehensive supply chain management solutions that have proven crucial for companies over the past year given the global supply chain’s disarray.  

In addition to AI and supply chain solutions, Celestica specializes in electric vehicle (EV) charging, energy storage, and other green energy products that will be crucial for reducing humanity’s carbon footprint in the future.

Their recent financial performance exceeded analyst expectations with a 17% increase in revenue YoY plus drastic improvements to cash flow, doubling to almost $40 million. With over $300 million in cash, the company is well-positioned to manage its debt and bought back 800,000 shares last quarter.

Projected revenue for 2023 and 2024 indicate record-breaking sales with a P/E ratio of 5.9x for the next twelve months—historical value territory for Celestica.

Price-to-Earnings Ratio (P/E): a financial metric used to evaluate the market’s expectation of a company’s future earnings. High P/E ratios suggest high growth expectations, while low ratios may imply slower growth.

Celestica and its pick-and-shovel strategy are primed to profit from the next wave of tech development, offering investors an intriguing opportunity to gain exposure to this exciting growth sector.

Take care,

Alex Kagin,

Director of Technology Investing Research, Money Map Press


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