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3 Electronics Stocks to Buy From a Prospering Industry
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The Zacks Electronics – Miscellaneous Products industry has been suffering from challenging macroeconomic conditions, high levels of inventories with distributors and steep interest rates. The global economic turmoil is expected to keep the semiconductor capex under check, which does not bode well for industry participants in the near term. However, players like KLA (KLAC - Free Report) , Garmin (GRMN - Free Report) , and Trimble (TRMB - Free Report) are benefiting from higher spending on advanced technologies, including augmented reality (AR) and virtual reality (VR). Continuing investments in data centers, high-performance computing and 5G end markets are the key catalysts. Fab (foundry) expansion in the United States, South Korea, Taiwan and China, as well as higher spending on memory equipment, is expected to drive growth in 2024 and beyond. Easing supply-chain constraints are also benefiting industry participants.
Industry Description
The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers of air-conditioning systems, green energy solutions, remote-control systems, GPS navigation, home automation systems, healthcare devices, industry/factory automation, robotics, semiconductor and optical applications, and energy management solutions. The industry is evolving on digital transformation and the growing demand for silicon across multiple markets. The increasing cost of manufacturing bodes well for equipment suppliers, while the growing demand for silicon is a positive for semiconductor companies. Apart from the United States, companies in this industry are based in Japan, Germany, the Netherlands and Switzerland. These companies either have manufacturing operations in China and South-East Asia or generate significant revenues from these regions.
3 Trends Shaping the Future of the Industry
Solid Capital Spending Drives Prospects: Technology transitions are driving product complexities, which are raising the demand for solutions provided by industry participants. Increasing investment in expanding manufacturing capacity by semiconductor companies is a key catalyst in the long run (irrespective of the near-term hiccups due to the challenging macroeconomic conditions). Since semiconductor companies are the major customers of miscellaneous electronics product manufacturers, the trend bodes well for industry participants. In addition, rising spending on advanced nodes — 7 nm, 5 nm and 3 nm processes from logic and foundry customers — favors industry participants. Notably, logic and foundry spending is anticipated to be healthy this year.
Emerging Markets of Wearables, AR & VR Drive Growth: Industry participants are riding on strong demand for wearables and AR and VR-supported display systems in defense, industrial, consumer applications and healthcare end markets. The adoption of AR and VR is increasing due to the growing proliferation of the metaverse.
Challenging Macroeconomic Condition is a Headwind: Industry participants are suffering from a challenging macroeconomic condition globally, with enterprises showing reluctance in committing to multi-year deals. Persistent inflation and unfavorable forex trends do not bode well for industry participants.
Zacks Industry Rank
The Zacks Electronics – Miscellaneous Products industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #92, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Feb 29, 2024, earnings estimates for the industry for the current year have moved north by 5.8%.
Given the bullish prospects, there are a number of stocks worth watching in the industry. But before we present a few of those stocks, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Beats S&P 500, Lags Broader Sector
The Zacks Electronics – Miscellaneous Products industry has outperformed the S&P 500 Index but lagged the broader Zacks Computer & Technology sector in the past year.
The industry has returned 42.7% during this period compared with the S&P 500 composite’s growth of 26.3% and the broader sector’s return of 43%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month P/E, which is a commonly used multiple for valuing Electronics-Miscellaneous products companies, we see that the industry is currently trading at 19.67X compared with the S&P 500’s 20.74X and the sector’s forward-12-month P/E of 25.88X.
Over the last five years, the industry has traded as high as 21.67X and as low as 11.55X, with the median being 15.92X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Buy Right Now
Garmin: This Olathe, KS-based navigation and communication equipment provider is benefiting from strong performance of the Fitness and Auto OEM segments.
The company’s Fitness segment top-line growth is benefiting from strong advanced wearables demand. This Zacks Rank #1 (Strong Buy) shares have gained 64.1% in the past year. The Zacks Consensus Estimate for GRMN’s 2024 earnings has decreased 2.8% to $5.58 per share over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: GRMN
KLA: This Zacks Rank #2 (Buy) company is benefiting from strong performance of the wafer inspection business, owing to rising demand for advanced wafer inspection applications in leading-edge technology development.
This San Jose, CA-based company is benefiting from growing investments across multiple nodes and rising capital intensity in Foundry & Logic.
The Zacks Consensus Estimate for fiscal 2024 has decreased 2.2% to $23.24 per share over the past 30 days. KLA shares have jumped 86.3% in the past year.
Price and Consensus: KLAC
Trimble: This Zacks Rank #2 company expects Annual Recurring Revenues (ARR) to increase 11-13% organically for 2024. AECO ARR is expected to grow in the mid-to-high teens range.
Total revenues on an organic basis are expected to grow between 4% and 7% driven by AECO’s growth in the high-teens to low-twenties range. Moreover, AECO margin are expected to increase roughly 300 basis points (bps) for 2024. Transportation margin is expected to increase roughly 100 bps for 2024.
TRMB shares have gained 19.8% in the past year. The consensus mark for Trimble’s 2024 earnings has remain unchanged at $2.70 per share over the past 30 days.
Price and Consensus: TRMB
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3 Electronics Stocks to Buy From a Prospering Industry
The Zacks Electronics – Miscellaneous Products industry has been suffering from challenging macroeconomic conditions, high levels of inventories with distributors and steep interest rates. The global economic turmoil is expected to keep the semiconductor capex under check, which does not bode well for industry participants in the near term. However, players like KLA (KLAC - Free Report) , Garmin (GRMN - Free Report) , and Trimble (TRMB - Free Report) are benefiting from higher spending on advanced technologies, including augmented reality (AR) and virtual reality (VR). Continuing investments in data centers, high-performance computing and 5G end markets are the key catalysts. Fab (foundry) expansion in the United States, South Korea, Taiwan and China, as well as higher spending on memory equipment, is expected to drive growth in 2024 and beyond. Easing supply-chain constraints are also benefiting industry participants.
Industry Description
The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers of air-conditioning systems, green energy solutions, remote-control systems, GPS navigation, home automation systems, healthcare devices, industry/factory automation, robotics, semiconductor and optical applications, and energy management solutions. The industry is evolving on digital transformation and the growing demand for silicon across multiple markets. The increasing cost of manufacturing bodes well for equipment suppliers, while the growing demand for silicon is a positive for semiconductor companies. Apart from the United States, companies in this industry are based in Japan, Germany, the Netherlands and Switzerland. These companies either have manufacturing operations in China and South-East Asia or generate significant revenues from these regions.
3 Trends Shaping the Future of the Industry
Solid Capital Spending Drives Prospects: Technology transitions are driving product complexities, which are raising the demand for solutions provided by industry participants. Increasing investment in expanding manufacturing capacity by semiconductor companies is a key catalyst in the long run (irrespective of the near-term hiccups due to the challenging macroeconomic conditions). Since semiconductor companies are the major customers of miscellaneous electronics product manufacturers, the trend bodes well for industry participants. In addition, rising spending on advanced nodes — 7 nm, 5 nm and 3 nm processes from logic and foundry customers — favors industry participants. Notably, logic and foundry spending is anticipated to be healthy this year.
Emerging Markets of Wearables, AR & VR Drive Growth: Industry participants are riding on strong demand for wearables and AR and VR-supported display systems in defense, industrial, consumer applications and healthcare end markets. The adoption of AR and VR is increasing due to the growing proliferation of the metaverse.
Challenging Macroeconomic Condition is a Headwind: Industry participants are suffering from a challenging macroeconomic condition globally, with enterprises showing reluctance in committing to multi-year deals. Persistent inflation and unfavorable forex trends do not bode well for industry participants.
Zacks Industry Rank
The Zacks Electronics – Miscellaneous Products industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #92, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Feb 29, 2024, earnings estimates for the industry for the current year have moved north by 5.8%.
Given the bullish prospects, there are a number of stocks worth watching in the industry. But before we present a few of those stocks, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Beats S&P 500, Lags Broader Sector
The Zacks Electronics – Miscellaneous Products industry has outperformed the S&P 500 Index but lagged the broader Zacks Computer & Technology sector in the past year.
The industry has returned 42.7% during this period compared with the S&P 500 composite’s growth of 26.3% and the broader sector’s return of 43%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month P/E, which is a commonly used multiple for valuing Electronics-Miscellaneous products companies, we see that the industry is currently trading at 19.67X compared with the S&P 500’s 20.74X and the sector’s forward-12-month P/E of 25.88X.
Over the last five years, the industry has traded as high as 21.67X and as low as 11.55X, with the median being 15.92X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Buy Right Now
Garmin: This Olathe, KS-based navigation and communication equipment provider is benefiting from strong performance of the Fitness and Auto OEM segments.
The company’s Fitness segment top-line growth is benefiting from strong advanced wearables demand. This Zacks Rank #1 (Strong Buy) shares have gained 64.1% in the past year. The Zacks Consensus Estimate for GRMN’s 2024 earnings has decreased 2.8% to $5.58 per share over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: GRMN
KLA: This Zacks Rank #2 (Buy) company is benefiting from strong performance of the wafer inspection business, owing to rising demand for advanced wafer inspection applications in leading-edge technology development.
This San Jose, CA-based company is benefiting from growing investments across multiple nodes and rising capital intensity in Foundry & Logic.
The Zacks Consensus Estimate for fiscal 2024 has decreased 2.2% to $23.24 per share over the past 30 days. KLA shares have jumped 86.3% in the past year.
Price and Consensus: KLAC
Trimble: This Zacks Rank #2 company expects Annual Recurring Revenues (ARR) to increase 11-13% organically for 2024. AECO ARR is expected to grow in the mid-to-high teens range.
Total revenues on an organic basis are expected to grow between 4% and 7% driven by AECO’s growth in the high-teens to low-twenties range. Moreover, AECO margin are expected to increase roughly 300 basis points (bps) for 2024. Transportation margin is expected to increase roughly 100 bps for 2024.
TRMB shares have gained 19.8% in the past year. The consensus mark for Trimble’s 2024 earnings has remain unchanged at $2.70 per share over the past 30 days.
Price and Consensus: TRMB
