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3 Top Electronics Stocks to Overcome Industry Headwinds
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The challenging macroeconomic environment and end-market volatility worldwide have affected the Zacks Electronics - Miscellaneous Components industry. Moreover, geo-political tensions, unfavorable forex and rising recessionary fears weigh on the industry’s prospects.
Nevertheless, TE Connectivity (TEL - Free Report) , BWX Technologies (BWXT - Free Report) and Novanta (NOVT - Free Report) are well-poised to benefit from the solid adoption of AI and the democratization of IoT techniques, which are transforming robotics, transportation systems, retail and healthcare. The ongoing automation drive and increased spending by semiconductors, automobiles, machinery and mobile phone manufacturers are other positives for the industry players. Also, easing supply-chain constraints are benefiting the industry participants.
Industry Description
The Zacks Electronics - Miscellaneous Components industry primarily comprises companies providing various accessories and parts used in electronic products. The industry participants’ offerings include power control and sensor technologies to mitigate equipment damage, testing products for safety and advanced medical solutions. They cater to varied end markets, such as telecommunications, automotive electronics, medical devices, industrial, transportation, energy harvesting, defense and aerospace electronic systems, and consumer electronics. The industry’s customers are mainly original equipment manufacturers, independent electronic component distributors and electronic manufacturing service providers.
4 Trends Shaping the Future of Electronics - Miscellaneous Components Industry
Macroeconomic Headwinds Pose Concerns: Fears of global recession and high inflation have negatively impacted the rate of deal wins. Due to the challenging macroeconomic scenario, enterprises are reluctant to sign multi-year deals worldwide. These trends do not bode well for the industry participants.
Geo-political Tensions Are Worrisome: The ongoing Russia-Ukraine war and, most importantly, the souring relationship between the United States and China remain headwinds. Increasing dependency on AI-backed electronic devices on semiconductors and current restrictions ordered by the U.S. on trading with China, which remains the main hub for chip production, is a significant negative for the underlined industry.
Automation Boom Acts as a Tailwind: The requirements for faster, more powerful and energy-efficient electronics lead to increased automation. Control systems — such as computers and robots, and information technologies for handling different processes and machinery — are driving the industry. The growing installation of collaborative robots, which add efficiency to production processes by working with production workers, will benefit the industry participants. IoT-supported factory automation solutions are other contributing factors. The evolution of smart cars and autonomous vehicles is expected to drive growth for the industry.
Miniaturization Remains a Key Lever: The industry participants benefit from the ongoing transition in semiconductor manufacturing technology. Demand for advanced packaging, enabling the miniaturization of electronic products, remains strong. The consistent shift to smaller dimensions, the rapid adoption of new device architectures like FinFET transistors and 3D-NAND, and the increasing utilization of new manufacturing materials to increase transistor and bit density are driving the demand for solutions provided by the industry players.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Electronics – Miscellaneous Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #189, placing it in the bottom 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bearish 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 results from the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, analysts are pessimistic about this group’s earnings growth potential. Since Dec 31, 2023, the industry’s earnings estimates for the current year have moved 3.2% 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 looking at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500 & Sector
The Zacks Electronics - Semiconductors industry has underperformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.
The industry has returned 15.8% over this period compared with the S&P 500’s growth of 27.6% and the broader sector’s rally of 41.5%.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price to earnings, a commonly-used multiple for valuing electronics - miscellaneous components stocks, the industry is currently trading at 21.58X compared with the S&P 500’s 21.43X and the sector’s 26.61X.
In the past five years, the industry has traded as high as 26.83X and as low as 16.26X, and recorded a median of 21.03X, depicted in the charts below.
Price/Earnings Ratio (F12M)
3 Electronics - Miscellaneous Components Stocks to Buy
TE Connectivity: The Switzerland-based company is benefiting from the growing proliferation of electric vehicles and strong content trends in electronification. Solid momentum across automotive applications is another positive. The growing traction in the field of commercial transportation is a tailwind. Improving commercial aerospace and strength in renewable applications are also aiding the firm.
This Zacks Rank #2 (Buy) company manufactures and designs products that connect and protect the flow of power and data inside millions of products used by consumers and industries. It is likely to continue gaining from the growing demand for its transportation and industrial solutions.
TE Connectivity has returned 13% in the past year. The Zacks Consensus Estimate for its fiscal 2024 earnings has been revised 0.8% upward to $7.57 per share over the past 60 days.
Price and Consensus: TEL
BWX Technologies: The Lynchburg, VA-based company is benefiting from strength across highly technical programs, including the missile tubes program. Backlog growth in the commercial nuclear power business is another positive. Growing momentum among naval reactor customers is benefiting the company. Apart from this, BWX Technologies’ strengthening footprint in the naval nuclear space on the back of strong deal wins is contributing well. In this regard, the company’s latest $300-million contract win for the manufacturing of naval nuclear remains noteworthy.
This Zacks Rank 2 company, which is the supplier of precision manufactured components and services to the commercial nuclear power industry, is expected to continue benefiting from the expanding special materials portfolio. It is also experiencing multiple program wins due to this portfolio.
BWX Technologies has returned 63.3% in the past year. The Zacks Consensus Estimate for its 2024 earnings has been revised 2% upward to $3.13 per share over the past 60 days.
Price and Consensus: BWXT
Novanta: The Bedford, MA-based company designs, develops, manufactures and sells precision photonic, and motion-control components and subsystems to original equipment manufacturers (OEM) in the medical equipment and advanced industrial technology markets. The company is benefiting from strong momentum across medical applications, thanks to which it is experiencing strong relationships with leading OEMs.
The Zacks Rank #2 player is remains well-poised to capitalize on the growing demand for robotics and automation, minimally invasive and robotic surgery, and precision medicine on the back of its robust portfolio. The company’s sticky business model is a plus.
Novanta has gained 11.7% in the past year. The Zacks Consensus Estimate for 2024 earnings has been revised 0.6% upward to $3.22 per share in the past 60 days.
Price and Consensus: NOVT
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3 Top Electronics Stocks to Overcome Industry Headwinds
The challenging macroeconomic environment and end-market volatility worldwide have affected the Zacks Electronics - Miscellaneous Components industry. Moreover, geo-political tensions, unfavorable forex and rising recessionary fears weigh on the industry’s prospects.
Nevertheless, TE Connectivity (TEL - Free Report) , BWX Technologies (BWXT - Free Report) and Novanta (NOVT - Free Report) are well-poised to benefit from the solid adoption of AI and the democratization of IoT techniques, which are transforming robotics, transportation systems, retail and healthcare. The ongoing automation drive and increased spending by semiconductors, automobiles, machinery and mobile phone manufacturers are other positives for the industry players. Also, easing supply-chain constraints are benefiting the industry participants.
Industry Description
The Zacks Electronics - Miscellaneous Components industry primarily comprises companies providing various accessories and parts used in electronic products. The industry participants’ offerings include power control and sensor technologies to mitigate equipment damage, testing products for safety and advanced medical solutions. They cater to varied end markets, such as telecommunications, automotive electronics, medical devices, industrial, transportation, energy harvesting, defense and aerospace electronic systems, and consumer electronics. The industry’s customers are mainly original equipment manufacturers, independent electronic component distributors and electronic manufacturing service providers.
4 Trends Shaping the Future of Electronics - Miscellaneous Components Industry
Macroeconomic Headwinds Pose Concerns: Fears of global recession and high inflation have negatively impacted the rate of deal wins. Due to the challenging macroeconomic scenario, enterprises are reluctant to sign multi-year deals worldwide. These trends do not bode well for the industry participants.
Geo-political Tensions Are Worrisome: The ongoing Russia-Ukraine war and, most importantly, the souring relationship between the United States and China remain headwinds. Increasing dependency on AI-backed electronic devices on semiconductors and current restrictions ordered by the U.S. on trading with China, which remains the main hub for chip production, is a significant negative for the underlined industry.
Automation Boom Acts as a Tailwind: The requirements for faster, more powerful and energy-efficient electronics lead to increased automation. Control systems — such as computers and robots, and information technologies for handling different processes and machinery — are driving the industry. The growing installation of collaborative robots, which add efficiency to production processes by working with production workers, will benefit the industry participants. IoT-supported factory automation solutions are other contributing factors. The evolution of smart cars and autonomous vehicles is expected to drive growth for the industry.
Miniaturization Remains a Key Lever: The industry participants benefit from the ongoing transition in semiconductor manufacturing technology. Demand for advanced packaging, enabling the miniaturization of electronic products, remains strong. The consistent shift to smaller dimensions, the rapid adoption of new device architectures like FinFET transistors and 3D-NAND, and the increasing utilization of new manufacturing materials to increase transistor and bit density are driving the demand for solutions provided by the industry players.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Electronics – Miscellaneous Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #189, placing it in the bottom 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bearish 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 results from the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, analysts are pessimistic about this group’s earnings growth potential. Since Dec 31, 2023, the industry’s earnings estimates for the current year have moved 3.2% 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 looking at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500 & Sector
The Zacks Electronics - Semiconductors industry has underperformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.
The industry has returned 15.8% over this period compared with the S&P 500’s growth of 27.6% and the broader sector’s rally of 41.5%.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price to earnings, a commonly-used multiple for valuing electronics - miscellaneous components stocks, the industry is currently trading at 21.58X compared with the S&P 500’s 21.43X and the sector’s 26.61X.
In the past five years, the industry has traded as high as 26.83X and as low as 16.26X, and recorded a median of 21.03X, depicted in the charts below.
Price/Earnings Ratio (F12M)
3 Electronics - Miscellaneous Components Stocks to Buy
TE Connectivity: The Switzerland-based company is benefiting from the growing proliferation of electric vehicles and strong content trends in electronification. Solid momentum across automotive applications is another positive. The growing traction in the field of commercial transportation is a tailwind. Improving commercial aerospace and strength in renewable applications are also aiding the firm.
This Zacks Rank #2 (Buy) company manufactures and designs products that connect and protect the flow of power and data inside millions of products used by consumers and industries. It is likely to continue gaining from the growing demand for its transportation and industrial solutions.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
TE Connectivity has returned 13% in the past year. The Zacks Consensus Estimate for its fiscal 2024 earnings has been revised 0.8% upward to $7.57 per share over the past 60 days.
Price and Consensus: TEL
BWX Technologies: The Lynchburg, VA-based company is benefiting from strength across highly technical programs, including the missile tubes program. Backlog growth in the commercial nuclear power business is another positive. Growing momentum among naval reactor customers is benefiting the company. Apart from this, BWX Technologies’ strengthening footprint in the naval nuclear space on the back of strong deal wins is contributing well. In this regard, the company’s latest $300-million contract win for the manufacturing of naval nuclear remains noteworthy.
This Zacks Rank 2 company, which is the supplier of precision manufactured components and services to the commercial nuclear power industry, is expected to continue benefiting from the expanding special materials portfolio. It is also experiencing multiple program wins due to this portfolio.
BWX Technologies has returned 63.3% in the past year. The Zacks Consensus Estimate for its 2024 earnings has been revised 2% upward to $3.13 per share over the past 60 days.
Price and Consensus: BWXT
Novanta: The Bedford, MA-based company designs, develops, manufactures and sells precision photonic, and motion-control components and subsystems to original equipment manufacturers (OEM) in the medical equipment and advanced industrial technology markets. The company is benefiting from strong momentum across medical applications, thanks to which it is experiencing strong relationships with leading OEMs.
The Zacks Rank #2 player is remains well-poised to capitalize on the growing demand for robotics and automation, minimally invasive and robotic surgery, and precision medicine on the back of its robust portfolio. The company’s sticky business model is a plus.
Novanta has gained 11.7% in the past year. The Zacks Consensus Estimate for 2024 earnings has been revised 0.6% upward to $3.22 per share in the past 60 days.
Price and Consensus: NOVT