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Bright Near-Term Outlook for Electronics Components Industry

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The Zacks Electronics - Miscellaneous Components industry primarily comprises companies that provide a wide range of electronic component products. Their offerings include power control as well as sensor technologies to mitigate equipment damage, test products for safety and advanced medical solutions.

The industry participants cater to varied end markets such as telecommunications, automotive electronics, medical devices, industrial, transportation, energy harvesting, defense and aerospace electronic systems, as well as consumer electronics. Its customers mainly consist of original equipment manufacturers, independent electronic component distributors and electronic manufacturing service providers.

Here are the industry’s three major themes:

  • Increasing complexity of electronic products, growing demand for AI in emerging markets and the ongoing development of new solutions for energy generation and conservation are benefiting industry participants.
     
  • Rising demand for products like ceramic and tantalum capacitors, Electro-Magnetic Compatible (EMC) devices, sensors and sensor-based measurement systems bode well for industry participants. However, trade-war driven increases in raw material costs, rising freight expenses and volatility in commodity prices pose significant challenges.
     
  • As majority of the industry participants have their manufacturing operations in China and South-East Asia, the ongoing trade dispute between the United States and China is impacting industry players, particularly in the areas of robotics, industrial automation and semiconductor applications.

Zacks Industry Rank Indicates Solid Prospects

The Zacks Electronics - Miscellaneous Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #108, which places it inthe top 42% 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 encouraging 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.

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 Underperforms S&P 500 &Sector

The Zacks Electronics - Miscellaneous Components industry has underperformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology Sector over the past year.

The industry declined 6.8% over this period compared with the broader sector’s fall of 2.1%.The S&P 500 has rallied 3.2% in the said time frame.

 

One-Year Price Performance

 

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing electronics - miscellaneous components stocks, the industry is currently trading at18.5X versus the S&P 500’s 16.67X and the sector’s 19.06X.

Over the past five years, the industry has traded as high as 20.97X, as low as 11.81X and recorded a median of 15.28X, which is depicted in the charts shown below.

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

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

Bottom Line

The development of new products and solutions in robotics, industrial automation, hybrid transportation systems, electronic controls for engines and industrial machinery, smart phones and portable devices, GPS navigation, as well as smart and connected (IoT) devices should drive growth. However, trade tensions and volatility in the prices of commodities like tantalum and ceramic powders are pressing concerns.

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

OSI Systems, Inc. ((OSIS - Free Report) ), a manufacturer of specialized electronic systems and components for critical applications in the homeland security, healthcare, defense and aerospace industries, has gained 43.6% over the past year. The company, which currently has a Zacks Rank #1, delivered average four-quarter positive earnings surprise of 24.22%.

Price and Consensus: OSIS

 

Rogers Corporation ((ROG - Free Report) ), which designs, develops, manufactures, and sells engineered materials and components worldwide, has gained 28.1% over the past year. The company, which currently has a Zacks Rank #1, delivered average four-quarter positive earnings surprise of 16.77%.

Price and Consensus: ROG

 

Universal Display Corporation ((OLED - Free Report) ) is a leading developer of technology and intellectual property (IP) for the organic light emitting diodes market. It has gained 95.5% over the past year. The company, which currently has a Zacks Rank #1, delivered average four-quarter positive earnings surprise of 56.15%.

Price and Consensus: OLED

 

Novanta Inc. ((NOVT - Free Report) ) manufactures and sells precision photonic and motion control components and subsystems to original equipment manufacturers in the medical equipment and advanced industrial technology markets. The company has gained 35.4% over the past year. The company, which currently has a Zacks Rank #2, delivered average four-quarter positive earnings surprise of 9.31%.

Price and Consensus: NOVT

 

 

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