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2 Electronics Stocks to Watch From a Challenging Industry
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The Zacks Electronics – Miscellaneous Products industry is benefiting from the rise in semiconductor capital expenditure despite the negative impact of the pandemic-induced supply-chain constraints. High demand for semiconductor chips is expected to keep the supply chain under pressure, thereby driving the average selling price. Increasing spending on advanced technologies bodes well for industry participants like Bel Fuse (BELFB - Free Report) and Flux Power (FLUX - Free Report) . Continuing investments in data-center, high-performance computing (HPC) and 5G end-markets are the key catalysts. Fab (foundry) expansion in the United States, South Korea, Taiwan and China as well as higher spending on memory equipment is expected to drive growth in 2022 and beyond.
Industry Description
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. The industry is evolving on digital transformation and growing demand for silicon across multiple markets. The increasing cost of manufacturing bodes well for equipment suppliers, while the growing demand for silicon is a positive for semiconductor companies. Apart from the United States, companies in this industry are domiciled in Japan, Germany, the Netherlands and Switzerland. These companies either have manufacturing operations in China and South-East Asia or generate significant revenues from the regions.
3 Trends Shaping the Future of the Industry
Solid Capital Spending Drives Prospects: Increasing capital expenditure by semiconductor companies is expected to improve further in 2022 and beyond, driven by investments in infrastructure as well as expanded capacity. Since semiconductor companies are major customers of the miscellaneous electronics product manufacturers, this trend bodes well for industry participants. In addition, rising spending on advanced nodes — 7 nm, 5 nm and 3 nm processes from logic and foundry customers — favors the industry participants. In fact, logic and foundry spending is anticipated to remain healthy this year.
Supply-Chain Constraints Remains a Headwind: Industry participants are bearing the brunt of the coronavirus-induced challenging macroeconomic environment and supply-chain headwinds. These factors have disrupted end-market demand, creating headwinds for industry participants in the near term.
Volatility in Commodity Prices is a Concern: OEMs are exposed to volatility in the prices of commodities like copper and steel. The coronavirus pandemic has been negatively impacting commodity markets due to a sharp slowdown in global manufacturing activity despite the unprecedented stimulus measures taken to buoy demand. Apart from this, industry participants are expected to face headwinds due to the U.S. ban on Huawei and HiSilicon.
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 #178, which places it in the bottom 29% 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 underperformance in the days to come.
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 the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. Since Sep 30, 2021, the industry’s earnings estimate for the current year has moved down 24.7%.
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 S&P 500 & Sector
The Zacks Electronics – Miscellaneous Products industry has underperformed the S&P 500 Index and the Computer & Technology sector in the past year.
The industry has declined 45.4% during this period against the S&P 500 composite’s appreciation of 23.2% and the broader sector’s rally of 34.6%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the 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 12.14X compared with the S&P 500’s 15.9X and the sector’s forward-12-month P/E of 19.09X.
Over the last five years, the industry has traded as high as 19.81X, as low as 10.18X and at the median of 15.02X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Watch
Bel Fuse: Jersey Street, NJ-based Bel Fuse designs, manufactures and markets a broad array of products that power, protect and connect electronic circuits. These products are primarily used in the networking, telecommunications, computing, high-speed data transmission, military, commercial aerospace, transportation and e-Mobility industries.
Bel’s portfolio of products is also used in the automotive, medical, broadcasting and consumer electronics end markets.
BELFB shares have been up 90% on a year-to-date basis. The Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s 2022 earnings has been steady at $3.20 per share over the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: BELFB
Flux Power: This Zacks Rank #2 (Buy) company design, develop, manufacture, and sell advanced lithium-ion energy storage solutions for the material handling sector, which includes lift trucks, airport ground support equipment, and other industrial and commercial applications.
FLUX shares have declined 35.9% year to date. The Zacks Consensus Estimate for FLUX’s fiscal 2023 loss has narrowed from 43 cents to 36 per share over the past 30 days.
Price and Consensus: FLUX
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2 Electronics Stocks to Watch From a Challenging Industry
The Zacks Electronics – Miscellaneous Products industry is benefiting from the rise in semiconductor capital expenditure despite the negative impact of the pandemic-induced supply-chain constraints. High demand for semiconductor chips is expected to keep the supply chain under pressure, thereby driving the average selling price. Increasing spending on advanced technologies bodes well for industry participants like Bel Fuse (BELFB - Free Report) and Flux Power (FLUX - Free Report) . Continuing investments in data-center, high-performance computing (HPC) and 5G end-markets are the key catalysts. Fab (foundry) expansion in the United States, South Korea, Taiwan and China as well as higher spending on memory equipment is expected to drive growth in 2022 and beyond.
Industry Description
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. The industry is evolving on digital transformation and growing demand for silicon across multiple markets. The increasing cost of manufacturing bodes well for equipment suppliers, while the growing demand for silicon is a positive for semiconductor companies. Apart from the United States, companies in this industry are domiciled in Japan, Germany, the Netherlands and Switzerland. These companies either have manufacturing operations in China and South-East Asia or generate significant revenues from the regions.
3 Trends Shaping the Future of the Industry
Solid Capital Spending Drives Prospects: Increasing capital expenditure by semiconductor companies is expected to improve further in 2022 and beyond, driven by investments in infrastructure as well as expanded capacity. Since semiconductor companies are major customers of the miscellaneous electronics product manufacturers, this trend bodes well for industry participants. In addition, rising spending on advanced nodes — 7 nm, 5 nm and 3 nm processes from logic and foundry customers — favors the industry participants. In fact, logic and foundry spending is anticipated to remain healthy this year.
Supply-Chain Constraints Remains a Headwind: Industry participants are bearing the brunt of the coronavirus-induced challenging macroeconomic environment and supply-chain headwinds. These factors have disrupted end-market demand, creating headwinds for industry participants in the near term.
Volatility in Commodity Prices is a Concern: OEMs are exposed to volatility in the prices of commodities like copper and steel. The coronavirus pandemic has been negatively impacting commodity markets due to a sharp slowdown in global manufacturing activity despite the unprecedented stimulus measures taken to buoy demand. Apart from this, industry participants are expected to face headwinds due to the U.S. ban on Huawei and HiSilicon.
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 #178, which places it in the bottom 29% 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 underperformance in the days to come.
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 the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. Since Sep 30, 2021, the industry’s earnings estimate for the current year has moved down 24.7%.
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 S&P 500 & Sector
The Zacks Electronics – Miscellaneous Products industry has underperformed the S&P 500 Index and the Computer & Technology sector in the past year.
The industry has declined 45.4% during this period against the S&P 500 composite’s appreciation of 23.2% and the broader sector’s rally of 34.6%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the 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 12.14X compared with the S&P 500’s 15.9X and the sector’s forward-12-month P/E of 19.09X.
Over the last five years, the industry has traded as high as 19.81X, as low as 10.18X and at the median of 15.02X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Watch
Bel Fuse: Jersey Street, NJ-based Bel Fuse designs, manufactures and markets a broad array of products that power, protect and connect electronic circuits. These products are primarily used in the networking, telecommunications, computing, high-speed data transmission, military, commercial aerospace, transportation and e-Mobility industries.
Bel’s portfolio of products is also used in the automotive, medical, broadcasting and consumer electronics end markets.
BELFB shares have been up 90% on a year-to-date basis. The Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s 2022 earnings has been steady at $3.20 per share over the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: BELFB
Flux Power: This Zacks Rank #2 (Buy) company design, develop, manufacture, and sell advanced lithium-ion energy storage solutions for the material handling sector, which includes lift trucks, airport ground support equipment, and other industrial and commercial applications.
FLUX shares have declined 35.9% year to date. The Zacks Consensus Estimate for FLUX’s fiscal 2023 loss has narrowed from 43 cents to 36 per share over the past 30 days.
Price and Consensus: FLUX