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2 Stocks to Watch From the Challenging Computer Industry

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The Zacks Computer – Mini Computers industry is suffering from massive supply-chain and logistical issues, along with several pandemic-related and geopolitical challenges, including the ongoing Russia-Ukraine war. The declining demand for PCs has become another concern for industry participants. Nevertheless, strong demand for high-end laptops and smartphones, particularly the availability of 5G-supported iPhones, has been a key catalyst. The growing adoption of tablets like the iPad among enterprises bodes well for Apple (AAPL - Free Report) .  The launch of foldable, and AI and ML-infused smartphones, tablets, wearables and hearables is another major growth driver for the industry participants. Robust demand for production printers, materials and software bodes well for 3-D printing solutions provider 3D Systems (DDD - Free Report) .

Industry Description

The Zacks Computer – Mini Computers industry comprises companies that offer smartphones, desktops, laptops, printers, wearables and 3-D printers. Such devices are based either on iOS, MacOS, iPadOS, WatchOS, Microsoft Windows, or Google Chrome and Android operating systems. They predominantly use processors from Apple, Intel, AMD, Qualcomm, NVIDIA and Samsung. Expanding screen size, better display and enhanced storage capabilities have been the key catalysts driving the rapid proliferation of smartphones. This has been well-supported by faster mobile processors. Laptops, both consumer and commercial, benefit from faster processors, sleek designs and expanded storage facilities. The addition of healthcare features has been driving the demand for wearables.

3 Mini Computer Industry Trends to Watch

Bring Your Own Device (BYOD) Aids Momentum: The industry is benefiting from the rapid adoption of BYOD in workplaces. Enterprises practicing BYOD allow employees to use their personal devices, including mobiles, laptops and tablets, for work purposes. BYOD helps connect remote workers and desk-bound employees, thereby improving process management and workflow. BYOD has proved more productive as it lowers training time. Moreover, the coronavirus-induced remote working and online learning models bode well for industry participants as demand is expected to increase for desktops and laptops.

Impressive Formfactor Drives Demand: Expanding screen size, better display and enhanced storage capabilities have been the key catalysts driving the rapid proliferation of smartphones and tablets. This has been well-supported by faster mobile processors from the likes of Qualcomm (Snapdragon-branded), NVIDIA (Tegra X1), Apple (A16 Bionic) and Samsung (Exynos 9609). Improved Internet penetration and speed, along with the evolution of mobile apps, have made smartphones indispensable for consumers. Improved graphics quality is making smartphones suitable for playing games like PUBG and Fortnite. This is expected to boost the demand for high-end smartphones and open up significant opportunities for device makers.

PCs Face Extinction Risk: Personal computers (desktops and laptops), be it Windows or Apple’s MacOS-based, have been facing the risk of extinction due to the rapid proliferation of smartphones and tablets. Stiff competition from smartphones has compelled global PC makers to not only upgrade hardware frequently but also add apps and cloud-based services to attract consumers. Nevertheless, the emergence of 5G, AI, machine learning and foldable computers is likely to be the key catalyst in expanding the total addressable market of PCs.

Zacks Industry Rank Indicates Dim Prospects

The Zacks Computer – Mini Computers industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #240, which places it in the bottom 4% 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 bearish 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 position in the bottom 50% of the Zacks-ranked industries is a result of a 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 Mar 31, 2022, the Zacks Consensus Estimate for this industry’s 2022 earnings has moved down 1.4%.

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 Sector and S&P 500

The Zacks Computer – Mini Computers industry has outperformed the broader Zacks Computer and Technology sector as well as the S&P 500 index over the past year.

The industry has dropped 5.3% over this period compared with the S&P 500’s decline of 21.3% and the broader sector’s fall of 37.3%.

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 computer stocks, we see that the industry is currently trading at 20.7X compared with the S&P 500’s 15.5X and the sector’s 20.14X.

Over the last five years, the industry has traded as high as 32.32X, as low as 11.49X and at the median of 20.77X, as the chart below shows.

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

 

 

 

2 Computer Stocks to Watch Right Now

Apple: This Zacks Rank #3 (Hold) company is benefiting from the continued momentum in the Services segment, driven by App Store, Cloud Services, Music, advertising and AppleCare. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apple’s near-term prospects are driven by the launch of the latest iPhone models, with iPhone 14 Pro witnessing strong demand. Apple TV+ is gaining recognition due to award-winning shows. This bodes well for the Services segment.

Apple currently has more than 860 million paid subscribers across its Services portfolio. The App Store continues to draw the attention of prominent developers worldwide, helping it offer appealing new apps that drive App Store traffic. A growing number of AI-infused apps will attract more subscribers to the App Store.

The Zacks Consensus Estimate for fiscal 2022 earnings has been unchanged at $6.11 per share over the past 30 days. The stock has lost 22% year to date.  

Price and Consensus: AAPL

 

3D Systems: This Zacks Rank #3 company is benefiting from strategic initiatives like the improvement of existing 3D printers, expanding partner base and enhancing productivity to drive growth.

3D Systems has implemented organizational changes to improve execution and increased investments as it shifts to a worldwide go-to-market structure. DDD plans to drive further reductions in the cost of sales from supply-chain betterment initiatives and manufacturing improvements in order to drive margins.

The Zacks Consensus Estimate for fiscal 2022 loss has widened by a penny to 26 cents per share over the past 30 days. Shares of 3D Systems have declined 63.1% year to date.

Price and Consensus: DDD



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