The Zacks Computer – Mini Computers industry comprises prominent companies like Apple (AAPL - Free Report) and HP (HPQ - Free Report) , which offer devices, including smartphones, desktops, laptops, printers, wearables and 3-D printers.
Such devices primarily adopt a multi-operating system and multi-architecture strategies using Apple’s iOS, MacOS, Microsoft Windows, Google Chrome and Android operating systems. They predominantly use processors from Apple, Intel (INTC - Free Report) , AMD, Qualcomm (QCOM - Free Report) , NVIDIA (NVDA - Free Report) , Samsung, Broadcom and MediaTek, among others.
Here are the four major industry themes:
- Expanding screen size, better display and enhanced storage capabilities have been key catalysts driving the rapid proliferation of smartphones. This has been well-supported by faster mobile processors from the likes of Qualcomm (Snapdragon-branded), NVIDIA (Tegra X1), Apple (A12 Bionic) and Samsung (Exynos 9609). Moreover, improved Internet penetration and speed along with the evolution of mobile apps have made smartphones indispensable for consumers. Further, the improved graphics quality is making smartphones suitable for playing games like PUBG and Fortnite. This is expected to boost demand for high-end smartphones and open up significant opportunities for device makers.
- Personal computers (desktops and laptops), be it Windows or Apple’s MacOS-based, have been facing the risk of extinction due to the rapid proliferation of smartphones and tablets. Shipment of Personal Computers (PCs) has also suffered due to inventory constraints of Intel’s CPU. Stiff competition from smartphones has compelled global PC makers to not only upgrade hardware frequently but also add apps and cloud-based services to attract consumers. IDC expects PC shipments to decline in 2020 due to lower commercial demand, which was strong in 2019 due to the transition to Windows 10. Nevertheless, the emergence of 5G, AI, machine learning and foldable computers is likely to be the key catalyst in expanding the scope of the PC market.
- The industry is benefiting from the rapid adoption of Bring Your Own Device (BYOD) in workplaces. Enterprises practicing BYOD allow employees to use their personal devices, including mobiles, laptops and tablets, for work purposes. BYOD helps in bridging communication gaps between remote workers and desk-bound employees, thereby improving process management and workflow. Moreover, BYOD has been proved more productive as it lowers training time. Additionally, the launch of innovative devices at the CES 2020, including Lenovo’s foldable laptop, HP Elite Dragonfly G2, which is being touted as the first business computer with 5G connectivity support, and Dell’s XPS 13 with the first-ever, virtually borderless InfinityEdge display, bodes well for the industry.
- The U.S.-China trade war and related tariffs have been a major headwind for the industry participants. Most of these companies have manufacturing operations in China and South-East Asia or generate significant revenues from this region. Hence, the Phase One agreement between the two nations is significantly positive for the industry. Nevertheless, a slowing China economy and lackluster smartphone demand are concerning. Further, the uncertainty surrounding Brexit is a drag.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Computer – Mini Computers industry is housed within the broader Zacks Computer And Technology sector. It carries a Zacks Industry Rank #106, which places it in the 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 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.
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 Sector and S&P 500
The Zacks Computer – Mini Computers industry has outperformed the broader Zacks Computer And Technology sector as well as the S&P 500 Index over the past year.
The industry has returned 94.4% over this period compared with the S&P 500’s rally of 24.4% and the broader sector’s gain of 31.8%.
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 computer stocks, we see that the industry is currently trading at 21.51X compared with the S&P 500’s 18.82X. It is also above the sector’s forward 12-month P/E of 22.44X.
Over the past five years, the industry has traded as high as 21.51X, as low as 10.12X and at the median of 14.09X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Consider
Here, we present a couple of stocks from the Computer – Mini Computers industry that has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cupertino, CA-based Apple is well known for its flagship iPhone, iPad and Mac personal computers. Apple Watch, HomePod and AirPods are some of its newest consumer offerings. The Zacks Consensus Estimate for fiscal 2020 earnings has increased 0.3% to $13.10 per share over the past 60 days.
Price and Consensus: AAPL
Palo Alto, CA-based HP is a leading global provider of PCs, and imaging and printing products. The Zacks Consensus Estimate for fiscal 2020 earnings has moved up 2.2% to $2.29 per share over the past 60 days.
Price and Consensus: HPQ