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Outlook for Electronics Semiconductors Industry Looks Bright

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The Zacks Electronics - Semiconductors industry primarily comprises companies that provide a wide range of semiconductor technologies. Their offerings includepackaging and test services, wafer cleaning, factory automation, face detection and image recognition capabilities to develop smart and connected products.

The industry participants primarily cater to end markets that constitute consumer electronics, communications, computing, industrial and automotive.

Here are the three major themes in the industry:

  • The emerging trend of computing in smart devices is a key catalyst for this industry. These devices have their own computing and learning capabilities to perform smart functions like face detection, image recognition and video analysis. Therefore, these require high levels of processing power, speed, memory and low power consumption, which are provided by the industry participants.
     
  • The increasing adoption of AI techniques and machine learning tools in industries like gaming, automotive and blockchain are driving the demand for better graphics processors as well as graphics solutions, which bode well for the industry. These graphics solutions help in increasing the speed of rendering images, along with improving image resolution and colour definition.
     
  • The increasing demand for miniaturization, greater functionality as well as improved thermal and electrical performance are driving the demand for semiconductor packaging and test technologies, thereby providing strong growth opportunities to the industry particpants.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Electronics - Semiconductors industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #83, which places it at the top 33% 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 solid 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 top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate.

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 S&P 500 & Sector

The Zacks Electronics - Semiconductors industry has surpassed the Zacks S&P 500 Composite, and the broader Zacks Computer and Technology Sector over the past year.

Over the same period, the industry has declined 4.5% compared with the S&P 500’s decline of 6.9% and the broader sector’s fall of 10%.

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing electronics semiconductors stocks, the industry is currently trading at 10.43X versus the S&P 500’s 16.04X and the sector’s 18.16X.

Over the past five years, the industry has traded as high as 29.87X, as low as 7.05X and recorded a median of 12.59X, as shown in the charts below.

Price-to-Earnings (P/E) Ratio (F1)

 

Bottom Line

The growing demand for advanced electronic equipment, including high-volume consumer electronic devices such as digital media players, smartphones, tablets, efficient packaging, machine vision solutions, robotics and cost-effective process technologies, should continue to drive the industry’s growth.

Here, we present four stocks that either have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and are well positioned to outperform the market. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

ACM Research, Inc. (ACMR - Free Report) , a developer and manufacturer of single-wafer wet cleaning equipment, has gained 74.5% over the past year. The company, which currently carries a Zacks Rank #2, has average four-quarter positive earnings surprise of 130.90%.

Price and Consensus: ACMR

Amkor Technology, Inc. (AMKR - Free Report) , one of the largest providers of semiconductor packaging and test services, has lost 29.4% over the past year. The company, which currently has a Zacks Rank #2, delivered average four-quarter positive earnings surprise of 54.91%.

Price and Consensus: AMKR

Lattice Semiconductor Corp. (LSCC - Free Report) , a developer of programmable logic devices and related development system software, has gained 14.8% over the past year. The company, which currently holds a Zacks Rank #2, recorded average four-quarter positive earnings surprise of 10.83%.

Price and Consensus: LSCC

Applied Optoelectronics, Inc. (AAOI - Free Report) , a manufacturer of advanced optical devices, packaged optical components, optical subsystems, laser transmitters and fiber optic transceivers, has lost 53.8% over the past year. The company, which currently has a Zacks Rank #2, came up with average four-quarter positive earnings surprise of 12.95%.

Price and Consensus: AAOI

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