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The Zacks Electronics - Semiconductors industry comprises companies that provide a range of solutions to develop smart and connected products. The industry is benefiting from an increasing need of advanced electronic equipment, including high-volume consumer electronic devices, efficient packaging and cost-effective process technologies.
The emerging trend of computing in smart devices is a key catalyst. These devices need their own computing and learning capabilities to perform functions like face detection, image recognition and video analytics capabilities. And therefore they require high levels of processing power, speed, memory and low power consumption, which are provided by the industry participants. Therefore strong demand for smart devices will drive growth for companies in the Zacks Electronics – Semiconductors industry.
Further, the increasing use of graphics processors and graphics solutions in Internet of Things (IoT) and machine learning are the key catalysts. The graphics solutions help in increasing the speed of rendering images, and improving image resolution and colour definition in markets like gaming, automotive and industrial. Also, these solutions process massive data sets for cloud and data center applications, driving growth for the industry players.
Additionally, strong demand for advanced packaging that enables the miniaturization of electronic products is driving growth for companies in the Electronics – Semiconductors industry.
However, the entire industry is tottering due to the ongoing tariff dispute between the United States and China.
Industry Lags on Shareholder Returns
Looking at shareholder returns over the past year, it appears that the ongoing trade tension between the United States and China, and growing U.S. protectionism has been dampening investor sentiment toward the Electronics – Semiconductors industry.
While the stocks in this industry have collectively gained 9.1%, the Zacks S&P 500 Composite and Zacks Computer And Technology Sector have rallied 16.3% and 17.6%, respectively.
One-Year Price Performance
Electronics – Semiconductors Stocks Trading Cheap
Thanks to the underperformance of the industry over the past year, the valuation for Electronics – Semiconductors industry looks cheap at the moment. One might get a good sense of the industry’s relative valuation by looking at its price-to-earnings ratio (P/E), which essentially shows how much an investor is willing to pay for each unit of earnings.
Notably, a lower P/E ratio is always better.
The industry currently has a forward 12-month P/E ratio of 8.37, which is below the median level and close to the lowest level over the past year.
The space also looks inexpensive when compared with the market at large, as the forward 12-month P/E ratio for the S&P 500 is 17.41 and the median level is 17.58.
Price/Earnings Forward 12 Months
Moreover, a comparison of the group’s P/E ratio with that of its broader sector ensures that the group is trading at a huge discount. The Zacks Computer And Technology Sector’s forward 12-month P/E ratio of 20.06, which is in line with the median level for the same period, is way above both the Zacks Electronics – Semiconductors Industry’s ratios.
Price/Earnings Forward 12 Months
Improving Earnings Outlook to Drive Outperformance
Moreover, strong industry fundamentals and expectations of solid top-line growth should continue to generate positive shareholder returns in the near future.
But what really matters to investors is whether this group has the potential to perform better than the broader market in the quarters ahead.
One reliable measure that can help investors understand the industry’s prospects for a solid price performance going forward is its earnings outlook. Empirical research shows that earnings outlook for the industry, a reflection of the earnings revision trend for the constituent companies, has a direct bearing on its stock market performance.
The Price & Consensus chart for the industry shows the market's evolving bottom-up earnings expectations for it and the industry's aggregate stock market performance.
Price and Consensus: Electronics-Semiconductors
This becomes even clearer by focusing on the aggregate bottom-up EPS revisions trend. The chart below shows the evolution of aggregate consensus expectations for 2018.
Please note that the $2.43 EPS estimate for the industry for 2018 is not the actual bottom-up EPS estimate for every company in the Zacks Electronics – Semiconductors industry, but rather an illustrative aggregate number created by our proprietary analytics model. The key factor to keep in mind is not the EPS of the industry for 2018, but how this projection has evolved recently.
The consensus earnings estimate for the Zacks Electronics – Semiconductors industry is pegged at $2.43 per share. Moreover, the estimate has shown improvement since June 2018. In other words, the buy-side analysts covering the companies in the Zacks Electronics – Semiconductors industry have been optimistic about raising their estimates.
Current Fiscal Year EPS Estimate Revisions
Zacks Industry Rank Indicates Solid Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term.
The Zacks Electronics – Semiconductors industry currently carries a Zacks Industry Rank #72, which places it at the top 28% of 256 Zacks industries. 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.
Bottom Line
The near-term growth prospect for the Zacks Electronics - Semiconductors is encouraging for investors, despite the ongoing trade tension between the United States and China.
As smart devices are gaining momentum, the need for electronics in the mobile and consumer market, communications and data center markets, among others, will always increase and the industry should continue to do well.
Lattice Semiconductor Corporation (LSCC - Free Report) : The stock has rallied 29.3% over the past year. The company sports a Zacks Rank #1 and has an average four-quarter positive earnings surprise of 83.33%.
Price and Consensus: LSCC
Mellanox Technologies, Ltd. : The stock has gained 66.7% over the past year. The company carries a Zacks Rank #1 and has an average four-quarter positive earnings surprise of 16.34%.
Price and Consensus: MLNX
Alpha and Omega Semiconductor Limited (AOSL - Free Report) : The stock has a Zacks Rank #2 and an average four-quarter positive earnings surprise of 26.80%.
Price and Consensus: AOSL
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6% and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
Image: Bigstock
Electronics - Semiconductors Outlook: Modest Growth Picture
The Zacks Electronics - Semiconductors industry comprises companies that provide a range of solutions to develop smart and connected products. The industry is benefiting from an increasing need of advanced electronic equipment, including high-volume consumer electronic devices, efficient packaging and cost-effective process technologies.
The emerging trend of computing in smart devices is a key catalyst. These devices need their own computing and learning capabilities to perform functions like face detection, image recognition and video analytics capabilities. And therefore they require high levels of processing power, speed, memory and low power consumption, which are provided by the industry participants. Therefore strong demand for smart devices will drive growth for companies in the Zacks Electronics – Semiconductors industry.
Further, the increasing use of graphics processors and graphics solutions in Internet of Things (IoT) and machine learning are the key catalysts. The graphics solutions help in increasing the speed of rendering images, and improving image resolution and colour definition in markets like gaming, automotive and industrial. Also, these solutions process massive data sets for cloud and data center applications, driving growth for the industry players.
Additionally, strong demand for advanced packaging that enables the miniaturization of electronic products is driving growth for companies in the Electronics – Semiconductors industry.
However, the entire industry is tottering due to the ongoing tariff dispute between the United States and China.
Industry Lags on Shareholder Returns
Looking at shareholder returns over the past year, it appears that the ongoing trade tension between the United States and China, and growing U.S. protectionism has been dampening investor sentiment toward the Electronics – Semiconductors industry.
The Zacks Electronics – Semiconductors Industry, within the broader Zacks Computer And Technology Sector, has underperformed both the S&P 500 and its own sector over the past year.
While the stocks in this industry have collectively gained 9.1%, the Zacks S&P 500 Composite and Zacks Computer And Technology Sector have rallied 16.3% and 17.6%, respectively.
One-Year Price Performance
Electronics – Semiconductors Stocks Trading Cheap
Thanks to the underperformance of the industry over the past year, the valuation for Electronics – Semiconductors industry looks cheap at the moment. One might get a good sense of the industry’s relative valuation by looking at its price-to-earnings ratio (P/E), which essentially shows how much an investor is willing to pay for each unit of earnings.
Notably, a lower P/E ratio is always better.
The industry currently has a forward 12-month P/E ratio of 8.37, which is below the median level and close to the lowest level over the past year.
The space also looks inexpensive when compared with the market at large, as the forward 12-month P/E ratio for the S&P 500 is 17.41 and the median level is 17.58.
Price/Earnings Forward 12 Months
Moreover, a comparison of the group’s P/E ratio with that of its broader sector ensures that the group is trading at a huge discount. The Zacks Computer And Technology Sector’s forward 12-month P/E ratio of 20.06, which is in line with the median level for the same period, is way above both the Zacks Electronics – Semiconductors Industry’s ratios.
Price/Earnings Forward 12 Months
Improving Earnings Outlook to Drive Outperformance
Moreover, strong industry fundamentals and expectations of solid top-line growth should continue to generate positive shareholder returns in the near future.
But what really matters to investors is whether this group has the potential to perform better than the broader market in the quarters ahead.
One reliable measure that can help investors understand the industry’s prospects for a solid price performance going forward is its earnings outlook. Empirical research shows that earnings outlook for the industry, a reflection of the earnings revision trend for the constituent companies, has a direct bearing on its stock market performance.
The Price & Consensus chart for the industry shows the market's evolving bottom-up earnings expectations for it and the industry's aggregate stock market performance.
Price and Consensus: Electronics-Semiconductors
This becomes even clearer by focusing on the aggregate bottom-up EPS revisions trend. The chart below shows the evolution of aggregate consensus expectations for 2018.
Please note that the $2.43 EPS estimate for the industry for 2018 is not the actual bottom-up EPS estimate for every company in the Zacks Electronics – Semiconductors industry, but rather an illustrative aggregate number created by our proprietary analytics model. The key factor to keep in mind is not the EPS of the industry for 2018, but how this projection has evolved recently.
The consensus earnings estimate for the Zacks Electronics – Semiconductors industry is pegged at $2.43 per share. Moreover, the estimate has shown improvement since June 2018. In other words, the buy-side analysts covering the companies in the Zacks Electronics – Semiconductors industry have been optimistic about raising their estimates.
Current Fiscal Year EPS Estimate Revisions
Zacks Industry Rank Indicates Solid Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term.
The Zacks Electronics – Semiconductors industry currently carries a Zacks Industry Rank #72, which places it at the top 28% of 256 Zacks industries. 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.
Bottom Line
The near-term growth prospect for the Zacks Electronics - Semiconductors is encouraging for investors, despite the ongoing trade tension between the United States and China.
As smart devices are gaining momentum, the need for electronics in the mobile and consumer market, communications and data center markets, among others, will always increase and the industry should continue to do well.
Here, we list three stocks that have been witnessing positive earnings estimate revisions and carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lattice Semiconductor Corporation (LSCC - Free Report) : The stock has rallied 29.3% over the past year. The company sports a Zacks Rank #1 and has an average four-quarter positive earnings surprise of 83.33%.
Price and Consensus: LSCC
Mellanox Technologies, Ltd. : The stock has gained 66.7% over the past year. The company carries a Zacks Rank #1 and has an average four-quarter positive earnings surprise of 16.34%.
Price and Consensus: MLNX
Alpha and Omega Semiconductor Limited (AOSL - Free Report) : The stock has a Zacks Rank #2 and an average four-quarter positive earnings surprise of 26.80%.
Price and Consensus: AOSL
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6% and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>