The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers (OEMs) of air-conditioning systems, remote control systems, GPS navigation, home automation systems, healthcare devices, industry/factory automation, robotics, semiconductor applications and energy management solutions.
Apart from the United States, companies in this industry are domiciled in Japan, Germany, the Netherlands and Switzerland. These companies either have manufacturing operations in China and South-East Asia or generate significant revenues from the regions.
Here are the three major industry themes:
- Industry participants like KLA Corp (KLAC), Garmin (GRMN) and Carrier Global (CARR) are bearing the brunt of coronavirus-induced challenging macro-economic environment, which is anticipated to hurt prospects in the near term. Although factories in China resumed operations, COVID-19-related uncertainties are expected to disrupt end-market demand (automotive, IoT) in the second half of 2020. Moreover, a dull demand environment in Europe and North America is expected to erode sales and profitability at least in the near term. Timing of the demand recovery is also indefinite. IDC expects global semiconductor sales to contract in 2020 instead of a previously expected growth forecast.
- Although COVID-19 has impacted prospects, capital expenditure of semiconductor companies like TSMC, Samsung and Intel (INTC), major customers of miscellaneous electronics product manufacturers, is expected to improve in 2020 and beyond on investments in infrastructure as well as expanded capacity. Additionally, increasing spending on advanced nodes - 7 nm, 5 nm and 3 nm processes from logic and foundry customers bodes well for industry participants. In fact, logic and foundry spending is expected to remain healthy in 2020 and 2021. Although datacenter, high-performance computing (HPC) and 5G-related infrastructure demand remains encouraging, downbeat business sentiments due to COVID-19 can affect spending in the near term. Further, memory-related spending is expected to remain sluggish in the remainder of 2020.
- OEMs are exposed to volatility in prices of commodities like copper and steel. The coronavirus pandemic is negatively impacting commodity markets due to a sharp slowdown in global manufacturing activity despite unprecedented stimulus measures taken to buoy demand. Moreover, industry participants are expected to face headwinds due to the U.S. ban on Huawei and HiSilicon.
Zacks Industry Rank
The Zacks Electronics – Miscellaneous Products industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #120, which places it in the top 48% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic on this group’s earnings growth potential. Since May 31, 2020, the industry’s earnings estimates for the current year have increased 11.2%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms S&P 500 and Sector
The Zacks Electronics – Miscellaneous Products industry has underperformed the S&P 500 Index and its own sector over the past year.
The industry has gained 11.3% in this period compared with the Zacks S&P 500 composite’s increase of 20.3% and the broader sector’s rally of 43.3%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing electronics-miscellaneous products companies, we see that the industry is currently trading at 18.70X compared with the S&P 500’s 23.37X and the sector’s forward-12-month P/E of 27.86X.
Over the last five years, the industry has traded as high as 18.73X, as low as 12.40X and at the median of 15.82X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Consider
An anticipated increase in semiconductor capital expenditure is anticipated to work in favor of the Zacks Electronics – Miscellaneous Products industry despite the negative impact of the coronavirus pandemic.
Currently, none of the stocks in the Zacks Electronics – Miscellaneous Products industry sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Here, we present two stocks with a Zacks Rank #2 (Buy) that are well-positioned to grow in the near term.
Garmin shares have gained 31.1% in the past year. The Zacks Consensus Estimate for this GPS technology provider’s current-year earnings has risen 26.1% to $4.06 over the past 30 days.
Price and Consensus: GRMN
KLA Corporation shares have returned 49% over the past year. The Zacks Consensus Estimate for its 2020 earnings has moved up 16.6% to $11.44 per share over the past 30 days.
Price and Consensus: KLAC
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KLA Corporation (KLAC): Free Stock Analysis Report
Intel Corporation (INTC): Free Stock Analysis Report
Garmin Ltd. (GRMN): Free Stock Analysis Report
Carrier Global Corporation (CARR): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.