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Miscellaneous Electronics Products Industry Prospects Bright

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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.

In addition to the United States, a number of companies in this industry are domiciled in Japan, Germany, the Netherlands and Switzerland. Either these have manufacturing operations in China and South-East Asia or generate significant revenues from this region.

Here are the three major industry themes:

  • Demand for memory chips is expected to keep rising from second-half 2019 to first-half of 2020, primarily buoyed by increased spending by datacenter customers. Moreover, the excess NAND and DRAM inventory, which had impeded growth in the first half of the year, is expected to normalize, thereby improving average selling price. Further, capital expenditure of semiconductor companies (TSMC, Samsung, Intel), major customers of miscellaneous electronics product manufacturers, is expected to rise in second-half 2019 and beyond on investments in infrastructure as well as expanded capacity. Additionally, increasing demand for 10 nm and 7 nm processes from logic and foundry customers bode well for industry participants.

 

  • Tariffs that resulted from the ongoing trade dispute between the United States and China, particularly in areas such as robotics, industrial automation and semiconductor applications, severely affected industry participants. The dispute has forced a number of industry participants to find new sources of production and supply. However, the transition has delayed shipments affecting revenues. Uncertainty over settlement of the trade dispute remains an overhang on industry participants. The ongoing dispute between Japan and South Korea is another major headwind.

 

  • OEMs are exposed to volatility in prices of commodities like copper and steel. Commodity prices are likely to increase in the near term on growing demand and concerns over tightening global supplies. Tariffs on key components procured from China have also bumped up raw material costs. Moreover, shortage of transistor and capacitor supply is hurting production capabilities.


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 #105, which places it in the top 41% 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 Mar 31, 2019, the industry’s earnings estimate for the current year has increased 5.6%.

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 valuation picture.

Industry Outperforms S&P 500 and Sector

The Zacks Electronics – Miscellaneous Products industry has outperformed the S&P 500 Index and its own sector over the past year.

The industry has risen 4.5% over this period against the Zacks S&P 500 composite’s decline of 0.4% and the broader sector’s fall of 3.1%.

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 15.70X compared with the S&P 500’s 16.59X and the sector’s forward-12-month P/E of 19.66X.

Over the last five years, the industry has traded as high as 18.78X, as low as 12.42X and at the median of 15.68X, as the chart below shows.

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

 


Stocks to Consider

Rising demand for memory chips and an anticipated increase in semiconductor capital expenditure spending are working in favor of the Zacks Electronics – Miscellaneous Products industry despite the ongoing tariff tussle.

Here, we present a few stocks that investors can pick to gain a footing in this industry. These stocks either have a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Garmin Ltd. (GRMN - Free Report) : The GPS technology provider flaunts a Zacks Rank #1. The stock has returned 21.6% in the past year. The Zacks Consensus Estimate for current-year earnings has increased 2.7% to $3.85 over the past 60 days.

Price and Consensus: GRMN

 



Milpitas, CA-based KLA Corporation (KLAC - Free Report) sports a Zacks Rank #1 and has returned 20.2% over the past year. The Zacks Consensus Estimate for its fiscal 2020 earnings has climbed 3.2% to $9.42 over the past 30 days.

Price and Consensus: KLAC




Amsterdam, Netherlands-based Koninklijke Philips N.V. (PHG - Free Report) is the parent company of the Philips Group. This Zacks Rank #2 stock has returned 8.9% over the past year. However, the consensus estimate for its current-year earnings has increased almost 2% to $2.15 over the past 60 days.

Price and Consensus: PHG

 



 

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