Bright Near-Term Outlook For Electronics Components Industry
Zacks Investment Research | Feb 04, 2019 04:45AM ET
The Zacks Electronics - Miscellaneous Components industry primarily comprises companies that provide a wide range of electronic component products. Their offerings include power control as well as sensor technologies to mitigate equipment damage, test products for safety and advanced medical solutions.
The industry participants cater to varied end markets such as telecommunications, automotive electronics, medical devices, industrial, transportation, energy harvesting, defense and aerospace electronic systems, as well as consumer electronics. Its customers mainly consist of original equipment manufacturers (OEMs), independent electronic component distributors and electronic manufacturing service providers (EMSs).
Here are the three major themes in the industry:
- Increasing complexity of electronic products, growing demand for AI technology in the emerging markets, along with the ongoing development of new solutions for energy generation and conservation are benefiting the industry participants.
- The increasing demand for products like ceramic and tantalum capacitors, Electro-Magnetic Compatible (EMC (NYSE:EMC)) devices, sensors and sensor-based measurement systems bodes well for the industry participants. However, trade-war driven increases in raw material costs, rising freight expenses and volatility in commodity prices pose significant challenges.
- As majority of the industry participants have their manufacturing operations in China and South-East Asia, the entire industry is tottering from the ongoing trade dispute between the United States and China, particularly in the areas of robotics, industrial automation and semiconductor applications.
Zacks Industry Rank Indicates Bright Prospects
The ZacksElectronics - Miscellaneous Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #110, which places it at the top 44% 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 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.
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 - Miscellaneous Components industry has surpassed the Zacks S&P 500 composite, and the broader Zacks Computer and Technology Sector over the past year.
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The industry has lost 4.5% over this period compared with the S&P 500’s decline of 6.9% and the broader sector’s fall of 10.0%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing electronics - miscellaneous components stocks, the industry is currently trading at15.64X versus the S&P 500’s 16.48X and the sector’s 19.07X.
Over the past five years, the industry has traded as high as 21.11X, as low as 11.97X and recorded a median of 15.33X, which is depicted in the charts shown below.
Price-to-Earnings (P/E) Ratio (F1)
Bottom Line
The development of new products and solutions in robotics, industrial automation, hybrid transportation systems, electronic controls for engines and industrial machinery, smart phones and portable devices, GPS navigation, as well as smart and connected (Internet of Things) devices should favour the industry’s growth. However, trade tensions and volatility in the prices of commodities like tantalum and ceramic powders are pressing concerns.
Here, we present three stocks that either have a Zacks Rank #1 (Strong Buy) or Rank 2 (Buy). These stocks are well positioned to outperform the market. You can see .
AVX Corp. (AVX), a leading worldwide manufacturer and supplier of a broad line of passive electronic components and related products, has lost 29.4% over the past year. The company, which currently has a Zacks Rank #1, delivered average four-quarter positive earnings surprise of 34.84%.
Price and Consensus: AVX
Fabrinet (FN) is a provider of precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers. The company, which currently has a Zacks Rank #1, delivered average four-quarter positive earnings surprise of 6.11%.
Price and Consensus: FN
OSI Systems, Inc. (OSIS), a manufacturer of specialized electronic systems and components for critical applications in the homeland security, healthcare, defense and aerospace industries, has gained 61.5% over the past year. The company, which currently has a Zacks Rank #1, delivered average four-quarter positive earnings surprise of 19.00%.
Price and Consensus: OSIS
ZAGG Inc. (ZAGG), a manufacturer and distributor of protective clear coverings and accessories for consumer electronic and hand-held devices, has lost 23.2% over the past year. The company, which currently has a Zacks Rank #1, delivered average four-quarter positive earnings surprise of 621.19%.
Price and Consensus: ZAGG
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