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3 Top Stocks From the Promising Manufacturing Electronics Industry
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A low-demand environment due to persistent softness in manufacturing activities poses a challenge to the Zacks Manufacturing - Electronics industry. However, improving supply chains and deceleration in inflation are key catalysts to the industry’s growth. Resiliency in some prominent end markets bodes well for these companies. Focus on digitalization and inorganic activities should bolster the growth of the industry players.
Amid buoyant near-term prospects, companies like Emerson Electric Co. (EMR - Free Report) , A. O. Smith Corporation (AOS - Free Report) and EnerSys (ENS - Free Report) are poised for growth.
About the Industry
The Zacks Manufacturing-Electronics industry comprises companies that manufacture electronic products like battery chargers, battery accessories, outdoor cabinet enclosures, power transmission products, electrical motion controls and motive power devices. Some industry players also provide water-treatment products, engineered flow components, process equipment and turn-key systems. These companies also offer state-of-the-art customer support and after-market services to end users. These companies are increasing investments in developing innovative technologies, boosting customer and employee experience as well as supply-chain modernization programs. The manufacturing electronic companies sell products and services in various end markets, including robotics, semiconductor, defense, aerospace, medical equipment and satellite communications.
3 Trends Shaping the Future of the Manufacturing Electronics Industry
Slowdown in the Manufacturing Sector: Amid a general softness in the economy, weakness in the manufacturing sector has been weighing on demand in the industry. Per the Institute for Supply Management (ISM) report, the Manufacturing Purchasing Manager's Index touched 46% in June, reflecting a contraction in manufacturing activities for the eighth consecutive month. A figure below 50 indicates a contraction in manufacturing activity. The new orders index remained in the contraction territory for the past several months. The production index and import and export indexes also declined in June. With recession fears looming large, a turnaround in the manufacturing sector is not likely anytime soon. This indicates a suppressed demand environment for the industry participants in the near term.
End-Market Strength: Despite a slowdown in manufacturing activities, demand across key end markets remains stable. Well-diversified end markets, such as gas, mining, refining, energy, renewable, life sciences, metals, electrification and automation, should help industry players offset weakness in demand associated with a single market. Additionally, the digitalization of business operations is helping industry participants boost their competitiveness through enhanced operational productivity, product quality and better cost management. Inorganic growth strategies bode well for the industry’s prospects.
Easing Supply Chain Disruptions: While supply chain disruptions and the resulting shortage of electronic components persist, the situation has improved with a decline in delivery lead times. This acts as a key catalyst for the industry’s growth in 2023. Additionally, an anticipated reduction in raw material costs, thanks to the deceleration in inflation, should aid the bottom line of manufacturing electronics companies.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Manufacturing – Electronics industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #11. This rank places it in the top 4% 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 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 keeping more faith in this group's earnings growth potential. The industry’s earnings estimates for 2023 have increased nearly 1% since the end of April.
Given the upbeat near-term prospects of the industry, we will present a few noteworthy stocks. But it is worth looking at the industry’s shareholder returns and its current valuation first.
Industry Outperforms S&P 500 & Sector
The Zacks Manufacturing – Electronics industry has outperformed both the Zacks S&P 500 composite index and the broader sector in the past year.
Over this period, the industry has rallied 24.6% compared with the sector and S&P 500 Index’s increase of 22.6% and 14%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing stocks, the industry is currently trading at 21.96X compared with the S&P 500’s 19.45X. It is also above the sector’s P/E ratio of 16.31X.
Over the past five years, the industry has traded as high as 27.66X, as low as 13.77X and at the median of 20.19X as the chart below shows.2
Price-to-Earnings Ratio
Price-to-Earnings Ratio
3 Manufacturing - Electronics Stocks to Buy
EnerSys: Headquartered in Reading, PA, EnerSys engages in manufacturing, marketing and distribution of various industrial batteries. Healthy backlog levels, robust demand in electrification and automation end markets and favorable pricing actions bode well for EnerSys’ growth. Inorganic activities are expected to drive growth of this Zacks Rank #1 (Strong Buy) company. The April 2023 acquisition of Industrial Battery and Charger Services Limited has bolstered the company’s motive power service offerings and strengthened its presence in the UK market. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for EnerSys’ fiscal 2024 (ended March 2024) earnings has been revised upward by 11.6% in the past 60 days. Shares of the company have surged 82.9% in a year.
Price and Consensus: ENS
Emerson: Headquartered in St. Louis, MO, Emerson is a diversified global engineering and technology company offering a wide range of products and services to customers in the consumer, commercial and industrial markets. Improving supply chains and strong demand in the process and hybrid end markets are key growth drivers for this Zacks Rank #2 (Buy) company. EMR aims to transform into a global automation company to drive growth and profitability. To this end, the company’s $8.2 billion deal to acquire National Instruments is noteworthy.
The Zacks Consensus Estimate for Emerson’s fiscal 2023 (ended September 2023) earnings has been revised northward by 2 cents in the past 60 days. Shares of the company have gained 10.8% in a year.
Price and Consensus: EMR
A. O. Smith: Headquartered in Milwaukee, WI, A. O. Smith is one of the leading manufacturers of commercial and residential water heating equipment, and water treatment products in the world. With improving supply chains, higher shipments are expected to drive AOS’ growth. Robust demand for commercial and residential boilers and water treatment products within the North America segment is a key catalyst behind this Zacks Rank #2 company’s growth.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings has been revised upward by 2 cents in the past 60 days. Shares of the company have appreciated 24.6% in a year.
Price and Consensus: AOS
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3 Top Stocks From the Promising Manufacturing Electronics Industry
A low-demand environment due to persistent softness in manufacturing activities poses a challenge to the Zacks Manufacturing - Electronics industry. However, improving supply chains and deceleration in inflation are key catalysts to the industry’s growth. Resiliency in some prominent end markets bodes well for these companies. Focus on digitalization and inorganic activities should bolster the growth of the industry players.
Amid buoyant near-term prospects, companies like Emerson Electric Co. (EMR - Free Report) , A. O. Smith Corporation (AOS - Free Report) and EnerSys (ENS - Free Report) are poised for growth.
About the Industry
The Zacks Manufacturing-Electronics industry comprises companies that manufacture electronic products like battery chargers, battery accessories, outdoor cabinet enclosures, power transmission products, electrical motion controls and motive power devices. Some industry players also provide water-treatment products, engineered flow components, process equipment and turn-key systems. These companies also offer state-of-the-art customer support and after-market services to end users. These companies are increasing investments in developing innovative technologies, boosting customer and employee experience as well as supply-chain modernization programs. The manufacturing electronic companies sell products and services in various end markets, including robotics, semiconductor, defense, aerospace, medical equipment and satellite communications.
3 Trends Shaping the Future of the Manufacturing Electronics Industry
Slowdown in the Manufacturing Sector: Amid a general softness in the economy, weakness in the manufacturing sector has been weighing on demand in the industry. Per the Institute for Supply Management (ISM) report, the Manufacturing Purchasing Manager's Index touched 46% in June, reflecting a contraction in manufacturing activities for the eighth consecutive month. A figure below 50 indicates a contraction in manufacturing activity. The new orders index remained in the contraction territory for the past several months. The production index and import and export indexes also declined in June. With recession fears looming large, a turnaround in the manufacturing sector is not likely anytime soon. This indicates a suppressed demand environment for the industry participants in the near term.
End-Market Strength: Despite a slowdown in manufacturing activities, demand across key end markets remains stable. Well-diversified end markets, such as gas, mining, refining, energy, renewable, life sciences, metals, electrification and automation, should help industry players offset weakness in demand associated with a single market. Additionally, the digitalization of business operations is helping industry participants boost their competitiveness through enhanced operational productivity, product quality and better cost management. Inorganic growth strategies bode well for the industry’s prospects.
Easing Supply Chain Disruptions: While supply chain disruptions and the resulting shortage of electronic components persist, the situation has improved with a decline in delivery lead times. This acts as a key catalyst for the industry’s growth in 2023. Additionally, an anticipated reduction in raw material costs, thanks to the deceleration in inflation, should aid the bottom line of manufacturing electronics companies.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Manufacturing – Electronics industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #11. This rank places it in the top 4% 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 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 keeping more faith in this group's earnings growth potential. The industry’s earnings estimates for 2023 have increased nearly 1% since the end of April.
Given the upbeat near-term prospects of the industry, we will present a few noteworthy stocks. But it is worth looking at the industry’s shareholder returns and its current valuation first.
Industry Outperforms S&P 500 & Sector
The Zacks Manufacturing – Electronics industry has outperformed both the Zacks S&P 500 composite index and the broader sector in the past year.
Over this period, the industry has rallied 24.6% compared with the sector and S&P 500 Index’s increase of 22.6% and 14%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing stocks, the industry is currently trading at 21.96X compared with the S&P 500’s 19.45X. It is also above the sector’s P/E ratio of 16.31X.
Over the past five years, the industry has traded as high as 27.66X, as low as 13.77X and at the median of 20.19X as the chart below shows.2
Price-to-Earnings Ratio
Price-to-Earnings Ratio
3 Manufacturing - Electronics Stocks to Buy
EnerSys: Headquartered in Reading, PA, EnerSys engages in manufacturing, marketing and distribution of various industrial batteries. Healthy backlog levels, robust demand in electrification and automation end markets and favorable pricing actions bode well for EnerSys’ growth. Inorganic activities are expected to drive growth of this Zacks Rank #1 (Strong Buy) company. The April 2023 acquisition of Industrial Battery and Charger Services Limited has bolstered the company’s motive power service offerings and strengthened its presence in the UK market. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for EnerSys’ fiscal 2024 (ended March 2024) earnings has been revised upward by 11.6% in the past 60 days. Shares of the company have surged 82.9% in a year.
Price and Consensus: ENS
Emerson: Headquartered in St. Louis, MO, Emerson is a diversified global engineering and technology company offering a wide range of products and services to customers in the consumer, commercial and industrial markets. Improving supply chains and strong demand in the process and hybrid end markets are key growth drivers for this Zacks Rank #2 (Buy) company. EMR aims to transform into a global automation company to drive growth and profitability. To this end, the company’s $8.2 billion deal to acquire National Instruments is noteworthy.
The Zacks Consensus Estimate for Emerson’s fiscal 2023 (ended September 2023) earnings has been revised northward by 2 cents in the past 60 days. Shares of the company have gained 10.8% in a year.
Price and Consensus: EMR
A. O. Smith: Headquartered in Milwaukee, WI, A. O. Smith is one of the leading manufacturers of commercial and residential water heating equipment, and water treatment products in the world. With improving supply chains, higher shipments are expected to drive AOS’ growth. Robust demand for commercial and residential boilers and water treatment products within the North America segment is a key catalyst behind this Zacks Rank #2 company’s growth.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings has been revised upward by 2 cents in the past 60 days. Shares of the company have appreciated 24.6% in a year.
Price and Consensus: AOS