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Bright Near-Term Outlook for Semi Communications Industry
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The Zacks Semiconductor – Communications industry primarily comprises companies that provide integrated circuits, which are used in storage, network computing and connectivity devices.
The industry participants primarily cater to end markets that constitute consumer, mobile, desktop, automotive, industrial, communications, IoT, wearable devices and others.
Here are the industry’s three major themes:
IoT is fast gaining market traction and bringing about fundamental changes in business models. It is advancing on the back of cloud storage and growing interconnectedness of things. Increasing use of IoT solutions in retail and transportation industries, and for the development of connected smart cities is driving growth of this industry.
Another factor driving this industry’s growth is an expanding automotive market, which continues to gain traction on increasing consumer demand for added technology, features in new vehicles, and transition to hybrid and electric vehicles. The increased need for safety and infotainment in these markets should continue to drive demand for semiconductors.
The majority of the industry participants depend on China for growth, particularly in areas of automotive and industrial automation, as well as semiconductor applications. The entire space, which derives a sizable portion of revenues from this region, is tottering due to the ongoing U.S.-China trade dispute. Also, the global outbreak of coronavirus has impacted the industry participants.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Semiconductor – Communications industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #43, which places it in the top 17% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects.
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.
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 Outperforms S&P 500 & Sector
The Zacks Semiconductor – Communications industry has outperformed the Zacks S&P 500 composite, as well as the broader Zacks Computer and Technology sector over the past year.
The industry has gained 50.3% over this period compared with the S&P 500’s rise of 6.5% and also the broader sector’s rally of 26.6%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing Semiconductor – Communications stocks, the industry is currently trading at 49.02X versus the S&P 500’s 22.72X and sector’s 26.59X.
Over the past five years, the industry has traded as high as 50.80X, as low as 13.64X and recorded a median of 23.80X, as shown in the charts below.
Price-to-Earnings (P/E) Ratio (F1)
Price-to-Earnings (P/E) Ratio (F1)
Bottom Line
Growing adoption of IoTs, smartphones, storage solutions, networking, and connectivity solutions — including Wi-Fi as well as Wi-Fi/Bluetooth integrated SOCs — along with the need for high-speed data in both communications networks and data centers bode well for the industry participants. Strong demand for analog integrated circles should continue to drive the industry’s growth.
Marvell Technology Group Ltd. (MRVL - Free Report) — a fabless designer, developer and marketer of analog, mixed-signal as well as digital signal processing integrated circuits — has gained 47.2% over the past year. The Zacks Consensus Estimate for 2020 earnings has remained stable at 92 cents per share over the past 30 days.
This stock carries a Zacks Rank #2 (Buy) at present.
Price and Consensus: MRVL
NeoPhotonics Corporation — a manufacture of photonic integrated circuit or PIC-based modules and subsystems for bandwidth-intensive, high-speed communications networks — has gained 90.3% over the past year. The Zacks Consensus Estimate for 2020 earnings has increased 1.8% to 56 cents per share over the past 30 days.
Price and Consensus: NPTN
Investors may currently retain this Zacks Rank #3 (Hold) stock.
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This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
Image: Bigstock
Bright Near-Term Outlook for Semi Communications Industry
The Zacks Semiconductor – Communications industry primarily comprises companies that provide integrated circuits, which are used in storage, network computing and connectivity devices.
The industry participants primarily cater to end markets that constitute consumer, mobile, desktop, automotive, industrial, communications, IoT, wearable devices and others.
Here are the industry’s three major themes:
Zacks Industry Rank Indicates Solid Prospects
The Zacks Semiconductor – Communications industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #43, which places it in the top 17% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects.
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.
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 Outperforms S&P 500 & Sector
The Zacks Semiconductor – Communications industry has outperformed the Zacks S&P 500 composite, as well as the broader Zacks Computer and Technology sector over the past year.
The industry has gained 50.3% over this period compared with the S&P 500’s rise of 6.5% and also the broader sector’s rally of 26.6%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing Semiconductor – Communications stocks, the industry is currently trading at 49.02X versus the S&P 500’s 22.72X and sector’s 26.59X.
Over the past five years, the industry has traded as high as 50.80X, as low as 13.64X and recorded a median of 23.80X, as shown in the charts below.
Price-to-Earnings (P/E) Ratio (F1)
Price-to-Earnings (P/E) Ratio (F1)
Bottom Line
Growing adoption of IoTs, smartphones, storage solutions, networking, and connectivity solutions — including Wi-Fi as well as Wi-Fi/Bluetooth integrated SOCs — along with the need for high-speed data in both communications networks and data centers bode well for the industry participants. Strong demand for analog integrated circles should continue to drive the industry’s growth.
None of the stocks in the Zacks Semiconductor – Communications industry sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Marvell Technology Group Ltd. (MRVL - Free Report) — a fabless designer, developer and marketer of analog, mixed-signal as well as digital signal processing integrated circuits — has gained 47.2% over the past year. The Zacks Consensus Estimate for 2020 earnings has remained stable at 92 cents per share over the past 30 days.
This stock carries a Zacks Rank #2 (Buy) at present.
Price and Consensus: MRVL
NeoPhotonics Corporation — a manufacture of photonic integrated circuit or PIC-based modules and subsystems for bandwidth-intensive, high-speed communications networks — has gained 90.3% over the past year. The Zacks Consensus Estimate for 2020 earnings has increased 1.8% to 56 cents per share over the past 30 days.
Price and Consensus: NPTN
Investors may currently retain this Zacks Rank #3 (Hold) stock.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>