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3 Electronics Stocks to Buy From a Challenging Industry
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The Zacks Electronics – Miscellaneous Products industry has been suffering from challenging macroeconomic conditions due to higher tariffs, trade restrictions and project deferrals in automotive and energy end-markets. The global economic turmoil is expected to keep the semiconductor capex in check, which does not bode well for industry participants in the near term. However, players like KLA (KLAC - Free Report) , Rockwell Automation (ROK - Free Report) and Flex (FLEX - Free Report) are benefiting from higher spending on AI infrastructure, data center, cloud computing, augmented reality (AR), virtual reality (VR) and intelligent climate solutions. Continuing investments in data centers, 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 2025 and beyond.
Industry Description
The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers of power products, drivetrains, 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 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 Southeast Asia or generate significant revenues from these regions.
3 Trends Shaping the Future of the Industry
Solid Capital Spending Drives Prospects: Ongoing technology transition due to rapid deployment of artificial intelligence (AI) is driving product complexities, which is raising the demand for solutions provided by industry participants. More complex designs, accelerating product cycles and high-value wafer volumes are growing the demand for advanced packaging. Increasing investment in expanding manufacturing capacity by semiconductor companies is a key catalyst in the long run. Since semiconductor companies are 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 industry participants. Logic and foundry spending is anticipated to be healthy this year.
Strong Demand for AI, Data Center and Cloud Computing Solutions: Industry participants are riding on strong demand for AI infrastructure, data center and cloud computing solutions. Wearables and AR and VR-supported display systems in defense, industrial, consumer applications and healthcare end markets are another prospect.
Challenging Macroeconomic Condition Acts as Headwind: Industry participants are suffering from challenging macroeconomic conditions globally, with enterprises in automotive, industrial and energy end-markets showing reluctance in committing to multi-year deals. Higher tariffs and persistent inflation do not bode well for industry participants.
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 #149, which places it in the bottom 39% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
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 June 30, 2024, earnings estimates for the industry for the current year have moved south by 16%.
Given the bearish prospects, there are only a few stocks worth buying in the industry. But before we present those stocks, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500, Broader Sector
The Zacks Electronics – Miscellaneous Products industry has underperformed the S&P 500 and the broader Zacks Computer and Technology sector in the past year.
The industry has declined 12.4% during this period against the S&P 500 composite’s return of 11.3% and the broader sector’s appreciation of 10.6%.
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 20.92X compared with the S&P 500’s 22.13X and the sector’s forward-12-month P/E of 26.91X.
Over the last five years, the industry has traded as high as 24.61X and as low as 17.53X, with the median being 20.39X, as the charts below show.
Rockwell Automation is well-poised to benefit from broadening its portfolio of hardware and software products, solutions and services. It is also gaining traction from investments in the cloud. The company is on track to reach around $250 million in year-over-year productivity benefits in fiscal 2025.
The Zacks Consensus Estimate for Rockwell Automation’s fiscal 2025 earnings has climbed 0.4% to $9.73 per share over the past 30 days.
Price and Consensus: ROK
Flex: This Zacks Rank #2 (Buy) stock is gaining from a growing IP portfolio, new design wins and strategic acquisitions. Solid demand across its data center, networking and automotive power electronics augurs well.
For fiscal 2026, Flex anticipates sustained strong demand from its data center customers as it continues to shift its portfolio toward higher-margin businesses. Strong execution and a favorable product mix are supporting margin expansion.
The Zacks Consensus Estimate for Flex’s fiscal 2026 earnings has been steady at $2.90 per share over the past 30 days. FLEX shares have appreciated 30.5% year to date.
Price and Consensus: FLEX
KLA: This Zacks Rank #2 company benefits from strong demand in leading-edge logic, high-bandwidth memory, and advanced packaging, which are driving growth in the semiconductor industry. Advanced packaging is expected to exceed $850 million in 2025.
KLA’s robust portfolio and its leadership in process control systems are enabling customers to manage increasing design complexity. The services business also continues to perform well. KLAC is well-positioned to capitalize on AI advancements, with AI driving demand for higher-value wafer processing and more complex designs.
KLA shares have surged 43.3% year to date. The consensus mark for KLAC’s fiscal 2025 earnings has inched up by a penny to $32.46 per share over the past 30 days.
Price and Consensus: KLAC
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3 Electronics Stocks to Buy From a Challenging Industry
The Zacks Electronics – Miscellaneous Products industry has been suffering from challenging macroeconomic conditions due to higher tariffs, trade restrictions and project deferrals in automotive and energy end-markets. The global economic turmoil is expected to keep the semiconductor capex in check, which does not bode well for industry participants in the near term. However, players like KLA (KLAC - Free Report) , Rockwell Automation (ROK - Free Report) and Flex (FLEX - Free Report) are benefiting from higher spending on AI infrastructure, data center, cloud computing, augmented reality (AR), virtual reality (VR) and intelligent climate solutions. Continuing investments in data centers, 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 2025 and beyond.
Industry Description
The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers of power products, drivetrains, 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 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 Southeast Asia or generate significant revenues from these regions.
3 Trends Shaping the Future of the Industry
Solid Capital Spending Drives Prospects: Ongoing technology transition due to rapid deployment of artificial intelligence (AI) is driving product complexities, which is raising the demand for solutions provided by industry participants. More complex designs, accelerating product cycles and high-value wafer volumes are growing the demand for advanced packaging. Increasing investment in expanding manufacturing capacity by semiconductor companies is a key catalyst in the long run. Since semiconductor companies are 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 industry participants. Logic and foundry spending is anticipated to be healthy this year.
Strong Demand for AI, Data Center and Cloud Computing Solutions: Industry participants are riding on strong demand for AI infrastructure, data center and cloud computing solutions. Wearables and AR and VR-supported display systems in defense, industrial, consumer applications and healthcare end markets are another prospect.
Challenging Macroeconomic Condition Acts as Headwind: Industry participants are suffering from challenging macroeconomic conditions globally, with enterprises in automotive, industrial and energy end-markets showing reluctance in committing to multi-year deals. Higher tariffs and persistent inflation do not bode well for industry participants.
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 #149, which places it in the bottom 39% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates bearish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
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 June 30, 2024, earnings estimates for the industry for the current year have moved south by 16%.
Given the bearish prospects, there are only a few stocks worth buying in the industry. But before we present those stocks, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500, Broader Sector
The Zacks Electronics – Miscellaneous Products industry has underperformed the S&P 500 and the broader Zacks Computer and Technology sector in the past year.
The industry has declined 12.4% during this period against the S&P 500 composite’s return of 11.3% and the broader sector’s appreciation of 10.6%.
One-Year Price Performance
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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 20.92X compared with the S&P 500’s 22.13X and the sector’s forward-12-month P/E of 26.91X.
Over the last five years, the industry has traded as high as 24.61X and as low as 17.53X, with the median being 20.39X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Buy Right Now
Rockwell Automation: This Zacks Rank #1 (Strong Buy) company’s shares have appreciated 14.1% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
Rockwell Automation is well-poised to benefit from broadening its portfolio of hardware and software products, solutions and services. It is also gaining traction from investments in the cloud. The company is on track to reach around $250 million in year-over-year productivity benefits in fiscal 2025.
The Zacks Consensus Estimate for Rockwell Automation’s fiscal 2025 earnings has climbed 0.4% to $9.73 per share over the past 30 days.
Price and Consensus: ROK
Flex: This Zacks Rank #2 (Buy) stock is gaining from a growing IP portfolio, new design wins and strategic acquisitions. Solid demand across its data center, networking and automotive power electronics augurs well.
For fiscal 2026, Flex anticipates sustained strong demand from its data center customers as it continues to shift its portfolio toward higher-margin businesses. Strong execution and a favorable product mix are supporting margin expansion.
The Zacks Consensus Estimate for Flex’s fiscal 2026 earnings has been steady at $2.90 per share over the past 30 days. FLEX shares have appreciated 30.5% year to date.
Price and Consensus: FLEX
KLA: This Zacks Rank #2 company benefits from strong demand in leading-edge logic, high-bandwidth memory, and advanced packaging, which are driving growth in the semiconductor industry. Advanced packaging is expected to exceed $850 million in 2025.
KLA’s robust portfolio and its leadership in process control systems are enabling customers to manage increasing design complexity. The services business also continues to perform well. KLAC is well-positioned to capitalize on AI advancements, with AI driving demand for higher-value wafer processing and more complex designs.
KLA shares have surged 43.3% year to date. The consensus mark for KLAC’s fiscal 2025 earnings has inched up by a penny to $32.46 per share over the past 30 days.
Price and Consensus: KLAC