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3 Electronics Stocks to Watch From a Prospering Industry
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The Zacks Electronics – Miscellaneous Products industry participants Carrier Global (CARR - Free Report) , Garmin (GRMN - Free Report) and Kopin (KOPN - Free Report) are benefiting from higher spending on advanced technologies, including augmented reality (AR) and virtual reality (VR). Continuing investments in data center, high-performance computing 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 2023 and beyond. Easing supply-chain constraints also benefit industry participants. However, challenging macroeconomic conditions, unfavorable forex and higher inflation are headwinds. The global economic turmoil is expected to keep semiconductor capex under check, which does not bode well for industry participants in the near term.
Industry Description
The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers of air-conditioning systems, green energy solutions, remote-control systems, GPS navigation, home automation systems, healthcare devices, industry/factory automation, robotics, semiconductor and optical applications, and energy management solutions. The industry is evolving on digital transformation and the 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 based 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: Technology transitions are driving product complexities, which are raising the demand for solutions provided by industry participants. Increasing capital expenditure by semiconductor companies is expected to be strong in the long run (irrespective of the near-term hiccups due to the challenging macroeconomic conditions), driven by investments in infrastructure, as well as expanding capacity. Since semiconductor companies are the major customers of miscellaneous electronics product manufacturers, the 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. Notably, logic and foundry spending is anticipated to be healthy this year.
Emerging Markets of Wearables, AR & VR Drives Growth: Industry participants are riding on strong demand for wearables, and AR and VR-supported display systems in defense, industrial, consumer applications and healthcare end markets. The adoption of AR and VR is increasing due to the growing proliferation of the metaverse.
Challenging Macroeconomic Conditions are Headwinds: Industry participants are suffering from a challenging macroeconomic condition globally. Raging inflation and unfavorable forex trends do not bode well for industry participants. The ongoing war between Russia and Ukraine is hurting prospects.
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 #110, which places it in the top 44% 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 bullish 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 the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Mar 31, 2023, the industry’s earnings estimates for the current year have moved up 2.7%.
Given the bullish prospects, there are a few stocks worth watching in the industry. But before we present those few stocks, 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 returned 5.3% during this period against the S&P 500 composite’s growth of 6.4% and the broader sector’s return of 12.8%.
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 17.71X compared with the S&P 500’s 18.93X and the sector’s forward-12-month P/E of 24.31X.
Over the last five years, the industry traded as high as 19.94X, as low as 10.18X and at the median of 15.23X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Watch
Carrier Global: The Palm Beach Gardens, FL-based company is a provider of advanced heating, ventilation, refrigeration, air conditioning, fire, security and building automation technologies.
Carrier Global is benefiting from solid momentum across its Heating, Ventilating and Air Conditioning (“HVAC”) segment. Strength in North America residential and light commercial businesses is constantly driving HVAC revenues. The acquisition of Viessmann Group's Climate Solutions business is a tailwind.
CARR shares have moved up 10.5% year to date. The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company’s 2023 earnings has been unchanged at $2.57 per share over the past 30 days.
Price and Consensus: CARR
Garmin: This Zacks Rank #2 (Buy) company is an original equipment manufacturer of navigation and communication equipment that incorporates global positioning system (GPS)-based technology. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Garmin is benefiting from the growing demand for advanced wearables and adventure watches. The Olathe, Kansas-based company’s strong focus on continued innovation, diversification and market expansion to explore growth opportunities in all its segments is a tailwind.
The consensus mark for 2023 earnings has been unchanged at $5.24 per share over the past 30 days. GRMN shares have moved up 14.5% year to date.
Price and Consensus: GRMN
Kopin: This Zacks Rank #2 company designs and manufactures several different types of microdisplays.
This Westborough, MA-based company is benefiting from the growing demand for optic solutions in end markets like defense, industrial, consumer applications, healthcare, and automotive. Kopin benefits from the increasing adoption of microdisplays in these end markets.
Moreover, increasing demand for high-resolution displays with low power consumption and a compact size for wearable devices present significant growth opportunities for Kopin.
KOPN shares have moved up 82.3% year to date. The Zacks Consensus Estimate for Kopin’s 2023 loss has narrowed from 13 cents per share to 9 cents over the past 30 days.
Price and Consensus: KOPN
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3 Electronics Stocks to Watch From a Prospering Industry
The Zacks Electronics – Miscellaneous Products industry participants Carrier Global (CARR - Free Report) , Garmin (GRMN - Free Report) and Kopin (KOPN - Free Report) are benefiting from higher spending on advanced technologies, including augmented reality (AR) and virtual reality (VR). Continuing investments in data center, high-performance computing 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 2023 and beyond. Easing supply-chain constraints also benefit industry participants. However, challenging macroeconomic conditions, unfavorable forex and higher inflation are headwinds. The global economic turmoil is expected to keep semiconductor capex under check, which does not bode well for industry participants in the near term.
Industry Description
The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers of air-conditioning systems, green energy solutions, remote-control systems, GPS navigation, home automation systems, healthcare devices, industry/factory automation, robotics, semiconductor and optical applications, and energy management solutions. The industry is evolving on digital transformation and the 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 based 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: Technology transitions are driving product complexities, which are raising the demand for solutions provided by industry participants. Increasing capital expenditure by semiconductor companies is expected to be strong in the long run (irrespective of the near-term hiccups due to the challenging macroeconomic conditions), driven by investments in infrastructure, as well as expanding capacity. Since semiconductor companies are the major customers of miscellaneous electronics product manufacturers, the 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. Notably, logic and foundry spending is anticipated to be healthy this year.
Emerging Markets of Wearables, AR & VR Drives Growth: Industry participants are riding on strong demand for wearables, and AR and VR-supported display systems in defense, industrial, consumer applications and healthcare end markets. The adoption of AR and VR is increasing due to the growing proliferation of the metaverse.
Challenging Macroeconomic Conditions are Headwinds: Industry participants are suffering from a challenging macroeconomic condition globally. Raging inflation and unfavorable forex trends do not bode well for industry participants. The ongoing war between Russia and Ukraine is hurting prospects.
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 #110, which places it in the top 44% 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 bullish 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 the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Mar 31, 2023, the industry’s earnings estimates for the current year have moved up 2.7%.
Given the bullish prospects, there are a few stocks worth watching in the industry. But before we present those few stocks, 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 returned 5.3% during this period against the S&P 500 composite’s growth of 6.4% and the broader sector’s return of 12.8%.
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 17.71X compared with the S&P 500’s 18.93X and the sector’s forward-12-month P/E of 24.31X.
Over the last five years, the industry traded as high as 19.94X, as low as 10.18X and at the median of 15.23X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Watch
Carrier Global: The Palm Beach Gardens, FL-based company is a provider of advanced heating, ventilation, refrigeration, air conditioning, fire, security and building automation technologies.
Carrier Global is benefiting from solid momentum across its Heating, Ventilating and Air Conditioning (“HVAC”) segment. Strength in North America residential and light commercial businesses is constantly driving HVAC revenues. The acquisition of Viessmann Group's Climate Solutions business is a tailwind.
CARR shares have moved up 10.5% year to date. The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) company’s 2023 earnings has been unchanged at $2.57 per share over the past 30 days.
Price and Consensus: CARR
Garmin: This Zacks Rank #2 (Buy) company is an original equipment manufacturer of navigation and communication equipment that incorporates global positioning system (GPS)-based technology. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Garmin is benefiting from the growing demand for advanced wearables and adventure watches. The Olathe, Kansas-based company’s strong focus on continued innovation, diversification and market expansion to explore growth opportunities in all its segments is a tailwind.
The consensus mark for 2023 earnings has been unchanged at $5.24 per share over the past 30 days. GRMN shares have moved up 14.5% year to date.
Price and Consensus: GRMN
Kopin: This Zacks Rank #2 company designs and manufactures several different types of microdisplays.
This Westborough, MA-based company is benefiting from the growing demand for optic solutions in end markets like defense, industrial, consumer applications, healthcare, and automotive. Kopin benefits from the increasing adoption of microdisplays in these end markets.
Moreover, increasing demand for high-resolution displays with low power consumption and a compact size for wearable devices present significant growth opportunities for Kopin.
KOPN shares have moved up 82.3% year to date. The Zacks Consensus Estimate for Kopin’s 2023 loss has narrowed from 13 cents per share to 9 cents over the past 30 days.
Price and Consensus: KOPN
