The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers (OEMs) of different devices like air-conditioning systems, GPS navigation, home automation systems, healthcare devices, industry/factory automation, robotics and semiconductor applications.
In addition to the United States, a number of companies in this industry are domiciled in Japan, Germany, the Netherlands and Switzerland. However, the common factor is that either these have manufacturing operations in China and South-East Asia or generate significant revenues from this region.
Here are the three major themes in the industry:
- The industry is tottering from the ongoing trade dispute between the United States and China, particularly in the areas of robotics, industrial automation and semiconductor applications. The tariffs imposed on $200 billion worth of imports from China in September cover parts and materials used in these segments of the industry. Moreover, short supply of transistors and capacitors is hurting production capabilities.
- The OEMs are exposed to volatility in prices of commodities like copper and steel. Commodity prices are likely to increase in the near term due to growing demand and concerns over tightening global supplies. Tariffs on key components procured from China are also increasing raw material costs.
- Further, volatility in foreign exchange, particularly in currencies like Japanese yen and Thai baht negatively impact industry participants. The resurgence in Japanese yen is expected to continue through the second half due to growing U.S. protectionism and headwinds in the emerging markets. Moreover, weakening currencies at developing economies against the U.S. dollar doesn’t bode well.
Zacks Industry Rank Blurs Prospects
The Zacks Electronics – Miscellaneous Products industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #201, which places it at the bottom 21% of 256 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued underperformance 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 bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has decreased by 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 Lags on Shareholder Returns
The Zacks Electronics – Miscellaneous Products industry has underperformed both the S&P 500 index and its own sector over the past year.
The industry lost 11% over this period compared with the S&P 500 index’s rally of 5.8% and the broader sector’s decline of 0.8%.
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 15.98X compared with the S&P 500’s 16.36X. It is also below the sector’s forward-12-month P/E of 18.40X.
Over the last five years, the industry has traded as high as 20.21X, as low as 12.34X and at the median of 16.11X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Tariff war and component supply shortage, which is increasing lead times, could weigh on the Zacks Electronics – Miscellaneous Products industry.
However, there are a few stocks that investors can pick to gain a footing in this industry. These 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.
Hoya Corporation (HOCPY - Free Report) : Tokyo-based Hoya sports a Zacks Rank #1. The stock has gained 15.3% over the past year. The Zacks Consensus Estimate for the current-year EPS has remained steady over the last 30 days.
Garmin Ltd. (GRMN - Free Report) : The GPS technology provider has a Zacks Rank #2. The stock has returned 6.4% over the past year. The Zacks Consensus Estimate for the current-year EPS has increased by 5.2% (17 cents) over the last 30 days.
Price and Consensus: GRMN
Trimble Inc. (TRMB - Free Report) : Sunnyvale, CA-based Trimble is an OEM of positioning, surveying and machine control products. This Zacks Rank #2 stock has lost 14.9% over the past year. However, the consensus EPS estimate for the company has moved 2.2% (4 cents) higher for the current year, over the last 30 days.
Price and Consensus: TRMB
Daikin Industries, Ltd. (DKILY - Free Report) : The consensus EPS estimate for this Japan-based air conditioning solutions provider has remained steady at 61 cents, over the last 30 days. The stock has lost 9.7% over the past year.
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