The Zacks Electronics – Measuring Instruments Industry comprises companies that offer wearables, test solutions and equipment, metrology solutions, and thermo management products.
Electronics aids to efficiency and automation of almost any work, rendering it virtually ubiquitous in this day and age. Consequently, the industry is benefiting from growing utilization of electronic devices in every major sector primarily consumer, automobile, industrial, aerospace & defense, and communications.
Here are the three major themes in the industry:
- Robust demand in the consumer sector for connected appliances is a key catalyst. Demand for the products offered by the industry participants is being driven by rapid proliferation of consumer-focused IoT devices like smart speakers and home security solutions. Further, ongoing technical advancement in the telecommunication sector is acting as a tailwind. Moreover, increasing need for security and surveillance system, and satellites in the aerospace and defense industry are driving demand for testing solutions.
- Growing adoption of fitness and wellness trackers and smart watches, which help in personal health monitoring, has fueled the usage for flat-panel display (FPD) technology. Further, rising demand for Augmented Reality (AR)/Virtual Reality (VR) devices and OLED displays are playing a significant role in driving the demand for FPDs. These factors are creating an extremely conducive environment for growth of the industry participants.
- The emergence of IoT services and 5G technology holds long-term promise as electronic devices form the very fulcrum of their existence. Moreover, the industry is expected to remain on track backed by strong efforts made toward the ongoing modification of the Internet infrastructure and robust demand for IoT supported factory automation in the industrial sectors. Further, the evolution of smart cars & self-driving vehicles and growing number of high-speed datacenters worldwide will fuel the need for tracking meters and navigation devices, which in turn is likely to drive the industry participants. For instance, KeySight Technologies (KEYS - Free Report) , a prominent player in the space, is riding on its strength in 5G domain. Further, its efforts in IoT and data center markets hold promise.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Electronics – Measuring Instruments industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #23, which places it at the top 9% of 253 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid 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 positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Since Nov 30, 2019, the industry’s earnings estimate for fiscal 2020 has revised upward.
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 &Sector
The Zacks Electronics – Measuring Instruments Industry has outperformed both the Zacks S&P 500 composite as well as its own sector in the past year.
The stocks in this industry have collectively gained 66.8% compared with the Zacks S&P 500’s growth of 30.7% and the Zacks Computer and Technology sector’s rally of 38.3%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of trailing 12-month price-to-sales ratio (P/S), which is a commonly used multiple for valuing Electronics – Measuring Instruments stocks, the industry is currently trading at 3.65X, higher than the S&P 500’s 3.48X and lower than the sector’s 4.02X.
Over the past five years, the industry has traded as high as 5.65X and as low as 1.35X, with the median being at 2.27, as the charts below show.
Trailing 12-Month Price-to-Sales Ratio
We believe the near-term growth prospects of this industry are bright given increased spending by manufacturers of semiconductors, automobiles, machineries, mobile phones and LED displays.
Below are two stocks that carry a Zacks Rank #1 (Strong Buy) that we would recommend for investments in this industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
Nova Measuring Instruments (NVMI - Free Report) based in Rehovot, Israel offers advanced metrology solutions like monitoring and measurement systems for the semiconductor manufacturing industry. The company has beat estimates in the trailing four quarters by 35.68%, on average.
Price and Consensus: NVMI
KeySight Technologies based in Santa Rosa, CA, is a provider of electronic design and test instrumentation systems. The company serves the communication and electronic industries. It has beat estimates in the trailing four quarters by 19.37%, on average.
Price and Consensus: KEYS
Moreover, investors are suggested to hold on the stock below from the same space with Zacks Rank #3 (Hold).
Mount Laurell, NJ-based InTest Corporation (INTT - Free Report) offers thermal management products and ATE interface solutions, which cater to the needs of the semiconductor industry in the development and testing of integrated circuits. The company has beat estimates in the trailing four quarters by 45.09%, on average.
Price and Consensus: INTT