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3 Electronics Stocks With Bright Industry Prospects to Watch

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The Zacks Electronics – Testing Equipment industry has been benefiting from 5G-related growth opportunities, strengthening automation drive, and learn-from-home and work-from-home trends. Strong recovery in the automotive sector remains a tailwind for the industry players. The growing adoption of software-enabled testing instruments and devices remains another positive. Industry participants like Agilent Technologies (A - Free Report) , AMETEK (AME - Free Report) and Teradyne (TER - Free Report) are well-poised to benefit from the aforesaid factors.

Industry Description

The Zacks Electronics – Testing Equipment industry comprises companies offering advanced instruments, electronic testing equipment solutions, thermal management systems, electrical connectors, motors and various test solutions. The major end-markets served by the industry are consumer, automobile, industrial, aerospace & defense, healthcare, semiconductors, and communications, to name a few. The industry participants have been continuously making technological advancements in order to gain traction among manufacturers of semiconductors, vehicles, machinery, smartphones and medical devices, who are constantly increasing their spending on electronic components.

3 Trends Shaping the Future of Electronics - Testing Equipment Industry

5G Prospects are Key Catalysts: The growing deployment of 5G holds near-term promise for the industry players. An uptick in demand for 5G test solutions, which are required for 5G deployment, is another major positive. The current coronavirus-triggered work-from-home and learn-from-home waves globally, which have been bolstering the demand for high-speed Internet services, bode well for electronic companies that are enhancing their 5G efforts. The growing number of high-speed data centers worldwide is another tailwind. Given the upbeat scenario, the industry is anticipated to remain on the growth trajectory, backed by strong efforts to bolster 5G strength.

Solid Adoption of Motion Control & Test Systems is a Positive: The rising utilization of precision motion-control solutions and automatic test systems in motion-control devices and testing products, particularly in the aerospace, automation, medical and military markets, is a boon. Further, commercial motor vehicles will likely continue to bolster the demand for vehicle-tracking systems, fleet-management solutions and other private fleet applications, which are part of the industry’s key offerings.

Synergies in Pharmaceutical Market are Tailwinds: The industry has been gaining from the increasing use of electrical instruments and software in the interrogation of biological properties of molecules and cells in clinical and medical science research work. The rapid adoption of the solutions is anticipated to drive growth for participants in the pharmaceutical end-market. We note that Agilent is capitalizing on the trend and gaining traction in the life science research space. The pharmaceutical market holds immense prospects, courtesy of the growing utilization of electronic testing equipment. The strengthening demand for RF test equipment by medical device manufacturers remains another tailwind.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Electronics – Testing Equipment industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #123, 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 the member stocks, indicates solid 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.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Aug 31, 2021, the industry’s earnings estimates for the current year have moved up 0.6%.

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 the valuation picture.

Industry Lags S&P 500 & Sector

The Zacks Electronics – Testing Equipment Industry has underperformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.

The companies in the industry have collectively gained 19.9% compared with the S&P 500 and the Computer and Technology sector’s rallies of 29.1% and 30.3%, respectively.

One-Year Price Performance


Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings ratio (P/E), which is a commonly used multiple for valuing the Electronics – Testing Equipment stocks, the industry is currently trading at 28.59X, higher than the S&P 500’s 21.92X and lower than the sector’s 29.66X.

Over the past five years, the industry has traded as high as 31.87X and as low as 18.87X, with a median of 23.83X, as the chart below shows.

Forward 12-Month Price-to-Earnings (P/E) Ratio

3 Testing Equipment Stocks to Keep a Close Eye on

AMETEK: The Berwyn, PA-based company has been gaining from solid contributions from the Magnetrol International and Crank Software acquisitions, which have been driving growth in its Electronic Instruments segment. Benefits from the Pacific Design Technologies buyout have been aiding the Electromechanical segment. Further, the rising demand for precision motion control solutions remains a major tailwind.

The company, which is a manufacturer of electronic appliances and electromechanical devices, remains optimistic about its strong momentum across the defense and medical markets. This Zacks Rank #2 (Buy) company’s proper execution of its four core growth strategies, namely operational excellence, global market expansion, investments in product development and acquisitions, are expected to continue aiding its finances in the near term.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The AME stock has gained 19.2% in the past year. The Zacks Consensus Estimate for the company’s 2021 earnings has been revised upward by 2.6% over the past 60 days to $4.79 per share.

Price and Consensus: AME

 

Teradyne: The North Reading, MA-based company has been benefiting from its robust Test business. Strength in Semiconductor Test & Wireless Test along with the solid rise in system-on-a-chip test shipments has been aiding growth in the Test business. Also, the growing Industrial Automation business on the back of positive contributions from Universal Robots has been benefiting the company.

This Zacks Rank #2 company, which is a provider of automated test equipment, remains optimistic about the strengthening demand environment across the automotive, analog and industrial markets. Further, Teradyne’s strong position in the semiconductor test market is likely to continue aiding its top-line growth.

The TER stock has returned 35.7% in the past year. The Zacks Consensus Estimate for the company’s 2021 earnings has been revised upward by 4.8% over the past 60 days to $5.89 per share.

Price and Consensus: TER

 

Agilent: The Palo Alto, CA-based company has been gaining from solid momentum across both small and large molecule applications, which has been strengthening its presence in the pharmaceutical market. Strength in Cell Analysis, Liquid Chromatography and Mass Spectrometry platforms remains another tailwind.

This Zacks Rank #3 (Hold) company is an original equipment manufacturer of a broad-based portfolio of test and measurement products serving multiple end markets. It has been experiencing positive contributions from the acquisition of BioTek Instruments. The company’s solid execution of the cross-lab strategy along with its persistent focus on aligning investments toward more attractive growth avenues and innovative high-margin product launches remains a positive.

Shares of Agilent have soared 30.5% in the past year. The Zacks Consensus Estimate for its fiscal 2022 earnings has been revised upward by 1.9% to $4.82 per share over the past 60 days.

Price and Consensus: A



 



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