Near-Term Outlook Dull For Manufacturing Electronics Stocks
Zacks Investment Research | Feb 04, 2020 10:00PM ET
The Zacks Zacks Industry Rank , which is basically the average of the Zacks Rank of all the member stocks, indicates discouraging 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 bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping less faith in this group's earnings growth potential. It’s worth noting here that the industry’s earnings estimates for the current year are down roughly 23.9% year over year.
In spite of the grim outlook, we present a few stocks that have strong earnings growth prospects. Before we discuss the stocks, it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500 & Outperforms Sector
The Zacks Manufacturing – Electronics industry has underperformed the S&P 500, while outperformed its sector in the past year. The stocks in this industry have collectively gained 15.1% compared with the S&P 500’s rally of 19.7% and the Zacks Industrial Products sector’s increase of 9.3%.
One-Year Price Performance
Manufacturing – Electronics Industry’s Valuation
Price/Earnings (P/E) ratio is commonly used for valuing manufacturing stocks.
The industry’s forward 12-month P/E ratio is 20.09. This clearly shows that the industry is trading above the S&P 500’s forward 12-month P/E ratio of 18.89 and the sector’s 18.06.
Over the past five years, the industry has traded at the highest level of 20.28x forward 12-month earnings and lowest level of 13.71x. The median level, over the same period, was 16.59X.
Manufacturing – Electronics Industry’s Valuation Versus Sector
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Manufacturing – Electronics Industry’s Valuation Versus S&P 500
Bottom Line
Owing to the prevalent headwinds, we believe that investment in the industry may not be prudent at the moment.
Despite the industry’s poor rank, we present four promising electronic product manufacturing stocks, which possess the potential to sail through the tough market conditions.
SPX FLOW, Inc. (FLOW): The stock of this Charlotte, NC-based company currently carries a Zacks Rank #1 (Strong Buy). The stock has rallied 38% over the past year. You can see Original post
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