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 industry's three major themes:
- Industry participants like KLA Corp (KLAC - Free Report) , Garmin (GRMN - Free Report) and Carrier Global (CARR - Free Report) are bearing the brunt of coronavirus (COVID-19)-induced challenging macro-economic environment, which is anticipated to hurt prospects in the near term. Due to lockdowns and movement restrictions, disrupted supply-chains in China and Europe are a major concern. Although factories in China resumed operations, the loss due to supply-chain disturbance, which is yet to be ascertained, is sparking uncertainty. Moreover, a dull demand environment in China, Japan and North America is expected to erode sales and profitability at least in the short term. Timing of the demand recovery is also indefinite. IDC expects global semiconductor sales to contract in 2020 instead of a previously expected growth forecast.
- Although COVID-19 has impacted prospects, capital expenditure of semiconductor companies like TSMC, Samsung and Intel (INTC), major customers of miscellaneous electronics product manufacturers, is expected to improve in 2020 and beyond on investments in infrastructure as well as expanded capacity. Additionally, increasing spending on advanced nodes - 7 nm, 5 nm and 3nm processes from logic and foundry customers bodes well for industry participants. In fact, logic and foundry spending is expected to remain healthy in 2020 and 2021. Although demand for memory chips is likely to keep rising in the current year, primarily from datacenter and high performance computing (HPC) customers, downbeat business sentiments due to COVID-19 can affect spending in the near term.
- OEMs are exposed to volatility in prices of commodities like copper and steel. The coronavirus pandemic is negatively impacting commodity markets due to a sharp slowdown in global manufacturing activity despite unprecedented stimulus measures taken to buoy demand.
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 #88, which places it in the top 35% 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.
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 and Sector
The Zacks Electronics – Miscellaneous Products industry has underperformed the S&P 500 Index and its own sector over the past year.
The industry has declined 16.3% in this period compared with the Zacks S&P 500 composite’s dip of 4.8% and the against the broader sector’s increase of 0.6%.
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 14.11X compared with the S&P 500’s 19.31X and the sector’s forward-12-month P/E of 21.44X.
Over the last five years, the industry has traded as high as 18.75X, as low as 12.40X and at the median of 15.53X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Consider
An anticipated increase in semiconductor capital expenditure is projected to work in favor of the Zacks Electronics – Miscellaneous Products industry despite the negative impact of the ongoing coronavirus pandemic.
Currently, none of the stocks in the Zacks Electronics – Miscellaneous Products industry flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Here, we present two stocks with a Zacks Rank #2 (Buy) that are well-positioned to grow in the near term.
Garmin shares have lost 8.4% in the past year. The Zacks Consensus Estimate for this GPS technology provider’s current-year earnings has stayed at $4.38 over the past 30 days.
Price and Consensus: GRMN
Universal Electronics (UEIC - Free Report) shares have returned 4.9% over the past year. The Zacks Consensus Estimate for its 2020 earnings has been steady at $4.03 over the past 30 days.
Price and Consensus: UEIC