The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers (OEMs) of air-conditioning systems, remote control systems, GPS navigation, home automation systems, healthcare devices, industry/factory automation, robotics, semiconductor applications and energy management solutions.
Apart from the United States, companies in this industry are domiciled 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.
Here are the three major industry themes:
- Per World Semiconductor Trade Statistics (WSTS), global semiconductor sales are expected to increase 5.9% in 2020 against an estimated 12.8% decline in 2019. Demand for memory chips is likely to keep rising in 2020, primarily from datacenter customers. Moreover, the excess NAND and DRAM inventory, which had impeded growth in majority of 2019, is expected to normalize, thereby improving average selling price. Further, capital expenditure of semiconductor companies like TSMC, Samsung and Intel (INTC - Free Report) , major customers of miscellaneous electronics product manufacturers, is expected to improve next year and beyond on investments in infrastructure as well as expanded capacity. Additionally, increasing demand for 10 nm and 7 nm processes from logic and foundry customers bodes well for industry participants.
- Tariffs that resulted from the ongoing U.S.-China trade dispute, particularly in areas such as robotics, industrial automation and semiconductor applications, have severely affected industry participants. Hence, the recently-agreed Phase 1 of the trade deal is an encouraging development for the industry participants. The deal, if signed, is expected to ease tariff pressure providing major respite to Apple (AAPL - Free Report) and its semiconductor suppliers like Qorvo (QRVO - Free Report) .
- OEMs are exposed to volatility in prices of commodities like copper and steel. Additionally, tariffs on key components procured from China have bumped up raw material costs. Moreover, shortage of transistor and capacitor supply is hurting production capabilities.
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 #71, which places it in the top 28% 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 continued outperformance in the near term. 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. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic on this group’s earnings growth potential. Since Mar 31, 2019, the industry’s earnings estimates for 2020 have moved 7.3% north.
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 and Sector
The Zacks Electronics – Miscellaneous Products industry has outperformed the S&P 500 Index and its own sector over the past year.
The industry has risen 47.3% over this period against the Zacks S&P 500 composite’s rally of 24.3% and the broader sector’s return of 27.2%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of 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 16.96X compared with the S&P 500’s 18.42X and the sector’s forward-12-month P/E of 21.81X.
Over the last five years, the industry has traded as high as 18.79X, as low as 12.41X and at the median of 15.78X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Consider
Rising demand for memory chips and an anticipated increase in semiconductor capital expenditure spending are working in favor of the Zacks Electronics – Miscellaneous Products industry.
Here, we present a couple of stocks that investors can choose to pick from this industry.
Garmin Ltd. (GRMN - Free Report) : The GPS technology provider flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock has returned 57.4% in the past year. The Zacks Consensus Estimate for its 2020 earnings has moved up 1.4% to $4.29 over the past 30 days.
Price and Consensus: GRMN
Milpitas, CA-based KLA Corporation (KLAC - Free Report) has a Zacks Rank #2 (Buy) and has returned 102.4% over the past year. The Zacks Consensus Estimate for its fiscal 2020 earnings has stayed at $9.88 over the past 30 days.
Price and Consensus: KLAC