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3 Electronics Stocks to Escape Pandemic-Led Disruptions
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The coronavirus pandemic-led supply-chain disruptions and end-market dynamics worldwide have affected the Zacks Electronics - Semiconductors industry. Macro-economic headwinds, geo-political tensions and rising inflationary pressure are weighing heavily on the industry’s prospects.
Nevertheless, industry players like Infineon Technologies (IFNNY - Free Report) , GlobalFoundries (GFS - Free Report) and ASE Technology (ASX - Free Report) have been benefiting from the increasing demand for high-volume consumer electronic devices, such as digital media players, smartphones and tablets, and the strong uptake of efficient packaging, machine vision solutions and robotics. Additionally, the growing proliferation of AI, Machine Learning (ML), Blockchain, Internet of Things (IoT), Augmented Reality/Virtual Reality (AR/VR) and industrial revolution 4.0 (which focuses on interconnectivity and automation) should continue to drive the industry’s growth.
Industry Description
The Zacks Electronics – Semiconductors industry primarily comprises companies that provide a wide range of semiconductor technologies. Their offerings include packaging and test services, wafer cleaning, factory automation, face detection, and image recognition capabilities to develop smart and connected products. The industry participants primarily cater to end-markets constituting consumer electronics, communications, computing, industrial and automotive. Notably, the companies are increasing their spending on research and development in order to stay afloat amid technological advancements and changing industry standards. The underlined industry is experiencing solid demand for advanced electronic equipment, helping its participants increase their investments in cost-effective process technologies.
What's Shaping the Future of the Electronics - Semiconductors Industry?
Supply-Chain Disruptions Remain Worrisome: The industry players are reeling under the impacts of the coronavirus-induced macroeconomic woes. Supply chains were disrupted by the pandemic-led shelter-in-place measures and lockdowns, which severely affected the industry participants. Production delays and underutilization of manufacturing capacities remain major concerns. The pandemic aggravated the concerns related to the economic downturn, persistently hurting the industry players’ spending patterns and new bookings.
New Export Rules are Concerning: As a result of escalating tensions between the United States and China, the newly imposed export curbs on China’s chip companies by the U.S. Department of Commerce turned out to be a major headwind. The new export regulation states that semiconductors developed with U.S. technology for use in artificial intelligence, high-performance computing, data centers and supercomputers can only be sold to China-based companies with an export license. This triggered supply shortages in the semiconductor industry, which is concerning.
5G Prospects are Key Catalysts: The growing deployment of 5G holds near-term prospects for the industry players. An uptick in the demand for 5G test solutions required for 5G deployment is another major positive. The growing number of high-speed data centers worldwide, which require ultra-fast internet 5G promises to deliver, is another tailwind. Increased connectivity and technology use in consumer electronics through IoT, AI, robotics, AR/VR, and others further set the demand for 5G. Given the upbeat scenario, the industry is anticipated to remain on the growth trajectory, backed by the efforts to strengthen 5G infrastructure.
Prospects Around Advanced Packaging Solid: The increasing demand for miniaturization, greater functionality, lower power consumption, and improved thermal and electrical performance is driving semiconductor packaging and test technologies. The growing requirement for advanced packaging is gaining traction in the semiconductor industry, which is a key catalyst for industry participants.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Electronics - Semiconductors industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #163, which places it in the bottom 35% 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 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 pessimistic about this group’s earnings growth potential. Since Oct 31, 2022, the industry’s earnings estimates for the current year have moved 9.4% down.
Despite the gloomy industry outlook, a few stocks have the potential to outperform the market based on a strong earnings outlook. But before we present the top industry picks, it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms S&P 500 & Sector
Over the past year, the Zacks Electronics - Semiconductors industry has surpassed the Zacks S&P 500 composite, as well as the broader Zacks Computer and Technology sector.
The industry has dipped 6.5% over this period compared with the S&P 500’s decline of 9.1%. The broader sector has fallen 18.5% in the said period.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-earnings ratio, a commonly used multiple for valuing electronics semiconductors stocks, the industry is currently trading at 17.88X versus the S&P 500 and the sector’s 18.66X and 22.63X, respectively.
Over the past five years, the industry has traded as high as 44.43X, as low as 5.62X and recorded a median of 14.47X, as the chart below shows.
Price/Earnings Ratio (F12M)
3 Electronics Semiconductor Stocks to Keep a Close Eye on
Infineon Technologies: The Munich, Germany-based company is gaining from strength in product and application areas, especially microcontrollers, which are benefiting its Automotive segment. Growing prospects in ADAS and electromobiity are other tailwinds. Industrial drives, and strength in renewable energy, energy infrastructure and transport, along with solid momentum in decarbonization and automation, are aiding its Industrial Power Control segment.
The Zacks Rank #1 (Strong Buy) company is also benefiting from momentum across enterprise power solutions and automotive charging. Rising solar installations by residential customers, and strong demand in the area of servers, industrial applications and silicon microphones are aiding its Power & Sensor Systems segment. Solid demand in the industrial IoT and smart buildings space is another positive for its Connected Secure Systems segment.
Infineon Technologies has gained 1.9% in the past year. The Zacks Consensus Estimate for the company’s fiscal 2023 earnings has moved 7.9% north to $2.45 per share over the past 30 days.
Price and Consensus: IFNNY
ASE Technology: The Taiwan-based provider of semiconductor manufacturing services in assembly and test is gaining from the robust ATM business, which is riding on the solid momentum across product categories such as wire-bond and advanced packaging, test solutions, consumer, communications, and computing. The strengthening utilization of ATM factory lines remains another positive. The increasing use of advanced packaging in applications across computing and communications end markets is a tailwind for ASX.
The Zacks Rank #2 (Buy) company is well-positioned to capitalize on the increased consumer demand for small and delicate electronics solutions on strength in wire-bonded products and advanced packaging.
ASE Technology has lost 0.5% in the past year. The Zacks Consensus Estimate for ASX’s 2023 earnings moved 5.1% north to 82 cents per share over the last 30 days.
Price and Consensus: ASX
GlobalFoundries: The Malta, NY-based manufacturer of a range of semiconductor devices, including microprocessors, mobile application processors, baseband processors, network processors, radio frequency modems, microcontrollers, power management units and microelectromechanical systems, continues to benefit from its position in the global semiconductor supply chain.
The Zacks Rank #3 (Hold) company is positioned well to capitalize on the strengthening demand for pervasive semiconductor solutions. Its expanding global manufacturing footprint is another major positive.
GlobalFoundries has gained 30% in the past year. The Zacks Consensus Estimate for the company’s 2023 earnings was unchanged at $2.38 per share over the last 30 days.
Price and Consensus: GFS
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3 Electronics Stocks to Escape Pandemic-Led Disruptions
The coronavirus pandemic-led supply-chain disruptions and end-market dynamics worldwide have affected the Zacks Electronics - Semiconductors industry. Macro-economic headwinds, geo-political tensions and rising inflationary pressure are weighing heavily on the industry’s prospects.
Nevertheless, industry players like Infineon Technologies (IFNNY - Free Report) , GlobalFoundries (GFS - Free Report) and ASE Technology (ASX - Free Report) have been benefiting from the increasing demand for high-volume consumer electronic devices, such as digital media players, smartphones and tablets, and the strong uptake of efficient packaging, machine vision solutions and robotics. Additionally, the growing proliferation of AI, Machine Learning (ML), Blockchain, Internet of Things (IoT), Augmented Reality/Virtual Reality (AR/VR) and industrial revolution 4.0 (which focuses on interconnectivity and automation) should continue to drive the industry’s growth.
Industry Description
The Zacks Electronics – Semiconductors industry primarily comprises companies that provide a wide range of semiconductor technologies. Their offerings include packaging and test services, wafer cleaning, factory automation, face detection, and image recognition capabilities to develop smart and connected products. The industry participants primarily cater to end-markets constituting consumer electronics, communications, computing, industrial and automotive. Notably, the companies are increasing their spending on research and development in order to stay afloat amid technological advancements and changing industry standards. The underlined industry is experiencing solid demand for advanced electronic equipment, helping its participants increase their investments in cost-effective process technologies.
What's Shaping the Future of the Electronics - Semiconductors Industry?
Supply-Chain Disruptions Remain Worrisome: The industry players are reeling under the impacts of the coronavirus-induced macroeconomic woes. Supply chains were disrupted by the pandemic-led shelter-in-place measures and lockdowns, which severely affected the industry participants. Production delays and underutilization of manufacturing capacities remain major concerns. The pandemic aggravated the concerns related to the economic downturn, persistently hurting the industry players’ spending patterns and new bookings.
New Export Rules are Concerning: As a result of escalating tensions between the United States and China, the newly imposed export curbs on China’s chip companies by the U.S. Department of Commerce turned out to be a major headwind. The new export regulation states that semiconductors developed with U.S. technology for use in artificial intelligence, high-performance computing, data centers and supercomputers can only be sold to China-based companies with an export license. This triggered supply shortages in the semiconductor industry, which is concerning.
5G Prospects are Key Catalysts: The growing deployment of 5G holds near-term prospects for the industry players. An uptick in the demand for 5G test solutions required for 5G deployment is another major positive. The growing number of high-speed data centers worldwide, which require ultra-fast internet 5G promises to deliver, is another tailwind. Increased connectivity and technology use in consumer electronics through IoT, AI, robotics, AR/VR, and others further set the demand for 5G. Given the upbeat scenario, the industry is anticipated to remain on the growth trajectory, backed by the efforts to strengthen 5G infrastructure.
Prospects Around Advanced Packaging Solid: The increasing demand for miniaturization, greater functionality, lower power consumption, and improved thermal and electrical performance is driving semiconductor packaging and test technologies. The growing requirement for advanced packaging is gaining traction in the semiconductor industry, which is a key catalyst for industry participants.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Electronics - Semiconductors industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #163, which places it in the bottom 35% 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 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 pessimistic about this group’s earnings growth potential. Since Oct 31, 2022, the industry’s earnings estimates for the current year have moved 9.4% down.
Despite the gloomy industry outlook, a few stocks have the potential to outperform the market based on a strong earnings outlook. But before we present the top industry picks, it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms S&P 500 & Sector
Over the past year, the Zacks Electronics - Semiconductors industry has surpassed the Zacks S&P 500 composite, as well as the broader Zacks Computer and Technology sector.
The industry has dipped 6.5% over this period compared with the S&P 500’s decline of 9.1%. The broader sector has fallen 18.5% in the said period.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-earnings ratio, a commonly used multiple for valuing electronics semiconductors stocks, the industry is currently trading at 17.88X versus the S&P 500 and the sector’s 18.66X and 22.63X, respectively.
Over the past five years, the industry has traded as high as 44.43X, as low as 5.62X and recorded a median of 14.47X, as the chart below shows.
Price/Earnings Ratio (F12M)
3 Electronics Semiconductor Stocks to Keep a Close Eye on
Infineon Technologies: The Munich, Germany-based company is gaining from strength in product and application areas, especially microcontrollers, which are benefiting its Automotive segment. Growing prospects in ADAS and electromobiity are other tailwinds. Industrial drives, and strength in renewable energy, energy infrastructure and transport, along with solid momentum in decarbonization and automation, are aiding its Industrial Power Control segment.
The Zacks Rank #1 (Strong Buy) company is also benefiting from momentum across enterprise power solutions and automotive charging. Rising solar installations by residential customers, and strong demand in the area of servers, industrial applications and silicon microphones are aiding its Power & Sensor Systems segment. Solid demand in the industrial IoT and smart buildings space is another positive for its Connected Secure Systems segment.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Infineon Technologies has gained 1.9% in the past year. The Zacks Consensus Estimate for the company’s fiscal 2023 earnings has moved 7.9% north to $2.45 per share over the past 30 days.
Price and Consensus: IFNNY
ASE Technology: The Taiwan-based provider of semiconductor manufacturing services in assembly and test is gaining from the robust ATM business, which is riding on the solid momentum across product categories such as wire-bond and advanced packaging, test solutions, consumer, communications, and computing. The strengthening utilization of ATM factory lines remains another positive. The increasing use of advanced packaging in applications across computing and communications end markets is a tailwind for ASX.
The Zacks Rank #2 (Buy) company is well-positioned to capitalize on the increased consumer demand for small and delicate electronics solutions on strength in wire-bonded products and advanced packaging.
ASE Technology has lost 0.5% in the past year. The Zacks Consensus Estimate for ASX’s 2023 earnings moved 5.1% north to 82 cents per share over the last 30 days.
Price and Consensus: ASX
GlobalFoundries: The Malta, NY-based manufacturer of a range of semiconductor devices, including microprocessors, mobile application processors, baseband processors, network processors, radio frequency modems, microcontrollers, power management units and microelectromechanical systems, continues to benefit from its position in the global semiconductor supply chain.
The Zacks Rank #3 (Hold) company is positioned well to capitalize on the strengthening demand for pervasive semiconductor solutions. Its expanding global manufacturing footprint is another major positive.
GlobalFoundries has gained 30% in the past year. The Zacks Consensus Estimate for the company’s 2023 earnings was unchanged at $2.38 per share over the last 30 days.
Price and Consensus: GFS