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3 Electronics Stocks to Escape Pandemic-Led Disruptions
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Worldwide supply-chain disruptions and end-market dynamics due to the pandemic affected the Zacks Electronics - Miscellaneous Components industry. Rising inflationary pressure, growing geo-political tensions and foreign currency headwinds are persistently taking a toll on the underlined industry.
Nevertheless, the industry in focus is consistently benefiting from the ongoing automation drive and increased spending by manufacturers of semiconductors, automobiles, machinery and mobile phones. Industry participants like nVent Electric (NVT - Free Report) , Littelfuse (LFUS - Free Report) and Fabrinet (FN - Free Report) remain well-poised to benefit from the solid adoption of AI and the democratization of IoT techniques, which are transforming robotics, industrial automation, transportation systems, retail and healthcare.
Industry Description
The Zacks Electronics - Miscellaneous Components industry primarily comprises companies providing a wide range of accessories and parts used in electronic products. The industry participants’ offerings include power control and sensor technologies to mitigate equipment damage, testing products for safety and advanced medical solutions. They cater to varied end markets, such as telecommunications, automotive electronics, medical devices, industrial, transportation, energy harvesting, defense and aerospace electronic systems, and consumer electronics. Its customers are mainly original equipment manufacturers, independent electronic component distributors and electronic manufacturing service providers.
4 Trends Shaping the Future of Electronics - Miscellaneous Components Industry
Supply-Chain Disruptions Worrisome: The industry players are reeling under the impacts of the coronavirus-induced macroeconomic woes. Supply chains were disrupted by the pandemic-led shelter-in-place measures and lockdowns, which severely affected the industry participants. Although economies are gradually reopening in several parts of the world, production delays and underutilization of manufacturing capacities remain a major concern. The pandemic aggravated the concerns related to the economic downturn, thus persistently hurting the industry players’ spending patterns and new bookings.
Labor Shortages a Concern: The pandemic-induced labor crisis is continuously affecting the production capacity of electronic companies. The companies are struggling to meet rising demand following the reopening of economies, worker absenteeism and short-term shutdowns. Labor crunch is dampening the industry participants’ prospects by increasing their lead times.
Automation Boom a Tailwind: The requirement for faster, more powerful and energy-efficient electronics is leading to increased automation. The use of control systems, such as computers and robots, as well as information technologies for handling different processes and machinery, is driving the industry. The growing installation of collaborative robots, which add efficiency to production processes by working with production workers, will benefit industry participants. IoT-supported factory-automation solutions are other contributing factors. The evolution of smart cars and autonomous vehicles is expected to drive growth for the industry.
Miniaturization Remains a Key Lever: The industry participants are benefiting from the ongoing transition in semiconductor manufacturing technology. Demand for advanced packaging, enabling the miniaturization of electronic products, remains strong. The consistent shift to smaller dimensions, the rapid adoption of new device architectures like FinFET transistors and 3D-NAND, and the increasing utilization of new manufacturing materials to increase transistor and bit density are driving demand for solutions provided by the industry players.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Electronics – Testing Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #170, placing it in the bottom 32% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, 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 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 Jul 31, 2022, the industry’s earnings estimates for the current year have moved 4.3% down.
Despite the gloomy industry outlook, a few stocks have the potential to outperform the market based on a strong earnings outlook. But before we present the top industry picks, it is worth looking at the industry’s shareholder returns and the current valuation first.
Industry Lags S&P 500, Outperforms Sector
The Zacks Electronics - Semiconductors industry has underperformed the Zacks S&P 500 composite but outperformed the broader Zacks Computer and Technology sector, over the past year.
The industry has lost 29.3% over this period compared with the S&P 500’s decline of 16.4% and the broader sector’s decrease of 32.8%.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price to earnings, a commonly used multiple for valuing electronics - miscellaneous components stocks, the industry is currently trading at 20.59X compared with the S&P 500’s 17.71X and the sector’s 21.5X.
Over the past five years, the industry has traded as high as 25.29X, as low as 14.53X and recorded a median of 18.67X, depicted in the charts below.
Price/Earnings Ratio (F12M)
3 Electronics - Miscellaneous Components Stocks to Watch
Fabrinet: FN offers advanced optical packaging and precision optical, and electro-mechanical and electronic manufacturing services to original equipment manufacturers of complex products. It is benefiting from a favorable demand environment. Further, solid momentum across optical communications products is aiding Fabrinet’s financial performance.
The currently Zacks Rank #2 (Buy) player is likely to remain on the growth trajectory owing to the growing momentum across optical communications OEM customers. Rising demand for optical communications components and modules, driven by increasing outsourcing production activities to third parties by OEMs, remains a tailwind. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Fabrinet has gained 8.1% in the past year. The Zacks Consensus Estimate for fiscal 2023 earnings has been revised 7.6% upward to $7.48 per share over the past 30 days.
Price and Consensus: FN
nVent Electric: This London, United Kingdom-based entity has been gaining from portfolio strength, and modular and digital platforms. Further, NVT’s growth, profits and cash strategies remain noteworthy. Moreover, strengthening relationships with strategic channel partners are expected to continue benefiting it.
The presently Zacks Rank #2 player, a provider of electrical connection and protection solutions, remains optimistic about strong demand for its products and solutions. Further, a solid execution of its strategy across high-growth verticals, product introductions, global expansion and strategic acquisitions remain tailwinds.
nVent Electric has gained 3.2% in the past year. The Zacks Consensus Estimate for NVT’s 2022 earnings has been revised 4.5% upward to $2.31 per share over the past 30 days.
Price and Consensus: NVT
Littelfuse: This Chicago, IL-based player is benefiting from strong product demand, solid execution and disciplined cost-management actions. Solid demand for electronic components in the automotive space, and strength in several electronics and industrial markets are also driving its growth.
The currently Zacks Rank #3 (Hold) entity is well-positioned to benefit from a robust design activity, given several strategic wins in high-growth industrial, electronics and transportation applications.
LFUS has lost 26.5% in the past year. The Zacks Consensus Estimate for 2022 earnings has been revised 1.2% upward to $16.69 per share over the past 30 days.
Price and Consensus: LFUS
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3 Electronics Stocks to Escape Pandemic-Led Disruptions
Worldwide supply-chain disruptions and end-market dynamics due to the pandemic affected the Zacks Electronics - Miscellaneous Components industry. Rising inflationary pressure, growing geo-political tensions and foreign currency headwinds are persistently taking a toll on the underlined industry.
Nevertheless, the industry in focus is consistently benefiting from the ongoing automation drive and increased spending by manufacturers of semiconductors, automobiles, machinery and mobile phones. Industry participants like nVent Electric (NVT - Free Report) , Littelfuse (LFUS - Free Report) and Fabrinet (FN - Free Report) remain well-poised to benefit from the solid adoption of AI and the democratization of IoT techniques, which are transforming robotics, industrial automation, transportation systems, retail and healthcare.
Industry Description
The Zacks Electronics - Miscellaneous Components industry primarily comprises companies providing a wide range of accessories and parts used in electronic products. The industry participants’ offerings include power control and sensor technologies to mitigate equipment damage, testing products for safety and advanced medical solutions. They cater to varied end markets, such as telecommunications, automotive electronics, medical devices, industrial, transportation, energy harvesting, defense and aerospace electronic systems, and consumer electronics. Its customers are mainly original equipment manufacturers, independent electronic component distributors and electronic manufacturing service providers.
4 Trends Shaping the Future of Electronics - Miscellaneous Components Industry
Supply-Chain Disruptions Worrisome: The industry players are reeling under the impacts of the coronavirus-induced macroeconomic woes. Supply chains were disrupted by the pandemic-led shelter-in-place measures and lockdowns, which severely affected the industry participants. Although economies are gradually reopening in several parts of the world, production delays and underutilization of manufacturing capacities remain a major concern. The pandemic aggravated the concerns related to the economic downturn, thus persistently hurting the industry players’ spending patterns and new bookings.
Labor Shortages a Concern: The pandemic-induced labor crisis is continuously affecting the production capacity of electronic companies. The companies are struggling to meet rising demand following the reopening of economies, worker absenteeism and short-term shutdowns. Labor crunch is dampening the industry participants’ prospects by increasing their lead times.
Automation Boom a Tailwind: The requirement for faster, more powerful and energy-efficient electronics is leading to increased automation. The use of control systems, such as computers and robots, as well as information technologies for handling different processes and machinery, is driving the industry. The growing installation of collaborative robots, which add efficiency to production processes by working with production workers, will benefit industry participants. IoT-supported factory-automation solutions are other contributing factors. The evolution of smart cars and autonomous vehicles is expected to drive growth for the industry.
Miniaturization Remains a Key Lever: The industry participants are benefiting from the ongoing transition in semiconductor manufacturing technology. Demand for advanced packaging, enabling the miniaturization of electronic products, remains strong. The consistent shift to smaller dimensions, the rapid adoption of new device architectures like FinFET transistors and 3D-NAND, and the increasing utilization of new manufacturing materials to increase transistor and bit density are driving demand for solutions provided by the industry players.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Electronics – Testing Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #170, placing it in the bottom 32% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, 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 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 Jul 31, 2022, the industry’s earnings estimates for the current year have moved 4.3% down.
Despite the gloomy industry outlook, a few stocks have the potential to outperform the market based on a strong earnings outlook. But before we present the top industry picks, it is worth looking at the industry’s shareholder returns and the current valuation first.
Industry Lags S&P 500, Outperforms Sector
The Zacks Electronics - Semiconductors industry has underperformed the Zacks S&P 500 composite but outperformed the broader Zacks Computer and Technology sector, over the past year.
The industry has lost 29.3% over this period compared with the S&P 500’s decline of 16.4% and the broader sector’s decrease of 32.8%.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price to earnings, a commonly used multiple for valuing electronics - miscellaneous components stocks, the industry is currently trading at 20.59X compared with the S&P 500’s 17.71X and the sector’s 21.5X.
Over the past five years, the industry has traded as high as 25.29X, as low as 14.53X and recorded a median of 18.67X, depicted in the charts below.
Price/Earnings Ratio (F12M)
3 Electronics - Miscellaneous Components Stocks to Watch
Fabrinet: FN offers advanced optical packaging and precision optical, and electro-mechanical and electronic manufacturing services to original equipment manufacturers of complex products. It is benefiting from a favorable demand environment. Further, solid momentum across optical communications products is aiding Fabrinet’s financial performance.
The currently Zacks Rank #2 (Buy) player is likely to remain on the growth trajectory owing to the growing momentum across optical communications OEM customers. Rising demand for optical communications components and modules, driven by increasing outsourcing production activities to third parties by OEMs, remains a tailwind. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Fabrinet has gained 8.1% in the past year. The Zacks Consensus Estimate for fiscal 2023 earnings has been revised 7.6% upward to $7.48 per share over the past 30 days.
Price and Consensus: FN
nVent Electric: This London, United Kingdom-based entity has been gaining from portfolio strength, and modular and digital platforms. Further, NVT’s growth, profits and cash strategies remain noteworthy. Moreover, strengthening relationships with strategic channel partners are expected to continue benefiting it.
The presently Zacks Rank #2 player, a provider of electrical connection and protection solutions, remains optimistic about strong demand for its products and solutions. Further, a solid execution of its strategy across high-growth verticals, product introductions, global expansion and strategic acquisitions remain tailwinds.
nVent Electric has gained 3.2% in the past year. The Zacks Consensus Estimate for NVT’s 2022 earnings has been revised 4.5% upward to $2.31 per share over the past 30 days.
Price and Consensus: NVT
Littelfuse: This Chicago, IL-based player is benefiting from strong product demand, solid execution and disciplined cost-management actions. Solid demand for electronic components in the automotive space, and strength in several electronics and industrial markets are also driving its growth.
The currently Zacks Rank #3 (Hold) entity is well-positioned to benefit from a robust design activity, given several strategic wins in high-growth industrial, electronics and transportation applications.
LFUS has lost 26.5% in the past year. The Zacks Consensus Estimate for 2022 earnings has been revised 1.2% upward to $16.69 per share over the past 30 days.
Price and Consensus: LFUS