The Zacks Computer – Mini Computers industry comprises prominent companies like Apple (AAPL - Free Report) and HP (HPQ - Free Report) that offer devices including smartphones, desktops, laptops, printers, wearables and 3-D printers.
Such devices primarily adopt a multi-operating system, 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:
- Industry participants are bearing the brunt of coronavirus-induced macroeconomic woes and the heightened fears of a prolonged recession. The pandemic that originated in China severely impacted the supply chain of these companies due to the lockdowns and government-imposed stay-at-home guidelines. Notably, most industry players have manufacturing operations in China and South-East Asia or generate significant revenues from this region. Although factories reopened in China, production delays remain a concern, at least in the near term. Moreover, coronavirus continues to wreak havoc in South East Asia (including India), Europe and the United States. Increasing level of unemployment is expected to hurt demand of high-end laptops and smartphones despite the work-from-home and online learning wave.
- 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. Moreover, the coronavirus-induced remote working and online learning model bodes well for industry participants as demand is expected to increase for desktops and laptops.
- 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 (A13 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. 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 total addressable market (TAM) of the PCs.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Computer – Mini Computers industry is housed within the broader Zacks Computer And Technology sector. It carries a Zacks Industry Rank #157, which places it in the bottom 38% 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 underperformance 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic over this group’s earnings growth potential. Since May 31, 2019, the industry’s earnings estimate for the current year has dipped almost 0.8%.
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 Beats 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 surged 57.9% over this period against the S&P 500’s fall of 1.4% and in comparison to the broader sector’s rally of 10.5%.
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 21.25X compared with the S&P 500’s 20.42X. It is also above the sector’s forward-12-month P/E of 22.99X.
Over the last five years, the industry has traded as high as 21.25X, as low as 10.12X and at the median of 14.48X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Watch
None of the stocks in the Computer – Mini Computers industry currently sport a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
However, we present couple of stocks with a Zacks Rank #3 (Hold) that investors may currently hold on to.
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 consensus mark for fiscal 2020 earnings has decreased 0.2% to $12.31 per share over the past month.
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 declined 3.1% to $2.17 over the past 30 days.
Price and Consensus: HPQ