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4 Stocks to Buy From the Promising Manufacturing Electronics Industry
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The Zacks Manufacturing - Electronics industry is poised for growth on the back of steady demand across the electronic services end market, increasing adoption of advanced manufacturing technologies and product innovation efforts. A surge in e-commerce activities is also likely to aid the industry’s growth.
A slowdown in manufacturing activities and the contraction of new orders might continue to dent the performances of the industry players. Eaton Corporation plc (ETN - Free Report) , Zurn Elkay Water Solutions Corporation (ZWS - Free Report) , EnerSys (ENS - Free Report) and Powell Industries, Inc. (POWL - Free Report) are a few industry participants that are expected to capitalize on prevalent opportunities.
Industry Description
The Zacks Manufacturing-Electronics industry comprises companies that manufacture electronic products like battery chargers, battery accessories, outdoor cabinet enclosures, power transmission products, electrical motion controls and motive power devices. Some industry players also provide water-treatment products, engineered flow components, process equipment and turn-key systems. These companies offer state-of-the-art customer support and after-market services to end users. The firms are increasing investments in developing innovative technologies, boosting customer and employee experience, and supply-chain modernization programs. The manufacturing electronic companies sell products and services in various end markets, including robotics, semiconductor, defense, aerospace, medical equipment and satellite communications.
3 Manufacturing Electronics Industry Trends in Focus
Weakness in the Manufacturing Sector: Persistent weakness in the manufacturing sector has been denting the demand in the industry. Per the Institute for Supply Management’s (“ISM”) report, the Manufacturing Purchasing Manager’s Index touched 46.8% in July, down from 48.5% in June. A figure less than 50% indicates a contraction in manufacturing activity. After breaking a contraction streak of 16 months by growing in March, the manufacturing sector contracted for the fourth consecutive month in July. Also, the New Orders Index remained in the contraction territory for the fourth consecutive month, registering 47.4% in July.
Strength in the Electronics Services Market: Despite a slowdown in manufacturing activities, demand across key end markets has been stable. Electronics manufacturers are steadily benefiting from the higher adoption of advanced manufacturing technologies and processes by original equipment manufacturers. The requirement for integrating advanced electronic components into machinery and electronic devices has been supporting the electronics manufacturing services market. In addition, a few industry players with wide exposure to the booming medical and life science markets are witnessing a positive momentum across their businesses due to sturdy demand for their products and solutions. A surge in the e-commerce business has also been boosting several industry participants’ prospects.
Technological Advancement Benefits: With the gradual development of business models and cutting-edge technologies, a number of industry players have been banking on digitizing their business operations for a while now. With digitization, businesses are gaining a detailed insight into their operational performances, demand cycles, delivery status and supply-chain issues. This, in turn, is helping them bolster their competitiveness in the market with enhanced operational productivity, product quality and lower costs.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Manufacturing – Electronics industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #15. This rank places it in the top 6% 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 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 2 to 1.
Given the strong near-term prospects of the industry, we will present a few noteworthy stocks for your consideration. But it is worth looking at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Sector & Lags the S&P 500
The Zacks Manufacturing – Electronics industry has outperformed the broader sector but lagged the Zacks S&P 500 composite index in the year-to-date period.
Over this period, the industry has gained 8.2% compared with the sector’s and S&P 500 Index’s growth of 7.9% and 18.1%, respectively.
Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing stocks, the industry is currently trading at 22.99X compared with the S&P 500’s 21.72X. It is also above the sector’s P/E ratio of 19.16X.
Over the past five years, the industry has traded as high as 28.43X, as low as 14.73X and at the median of 22.26X, as the chart below shows.
Price-to-Earnings Ratio vs SP500
Price-to-Earnings Ratio vs Sector
4 Manufacturing - Electronics Stocks to Buy
Powell Industries: Headquartered in Houston, TX, the company is engaged in designing, manufacturing and distributing custom-engineered equipment and systems. The company has been witnessing several favorable trends across its oil, gas and petrochemical end markets that include growth in energy transition projects, such as biofuels, carbon capture and hydrogen. Also, significant project awards, supported by high investments in LNG, related gas processing and petrochemical processes, are likely to drive its performance in the quarters ahead. POWL currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Powell Industries have soared 118.1% in the year-to-date period. The company reported better-than-expected results in the trailing four quarters, the average being 69.9%. The Zacks Consensus Estimate for the company’s fiscal 2024 (ending September 2024) earnings has been revised upward by 32.9% in the past 60 days.
Price and Consensus: POWL
Eaton: Headquartered in Dublin, Ireland, this is a diversified power management company and a global technology leader in electrical components and systems. Eaton is benefiting from improving end market conditions, increasing demand from the new AI data center, solid backlog level, and product development initiatives through investments in research and development.
The Zacks Rank #2 (Buy) company’s shares have rallied 23.3% in a year-to-date-period. The company reported better-than-expected results in each of the last four quarters, the average being 4.7%. The Zacks Consensus Estimate for its 2024 earnings has been revised upward by 1.5% in the past 60 days.
Price and Consensus: ETN
Zurn Elkay Water Solutions: Based in Milwaukee, WI, the company is a designer, manufacturer and marketer of water management solutions primarily in the United States and Canada. ZWS is poised to gain from the growing awareness of the need for clean, filtered drinking water, solid demand for its products and solutions, and its focus on operational execution.
Year to date, shares of Zurn Elkay Water Solutions have gained 9.1%. The company delivered an earnings surprise of 8.8%, on average, beating estimates in the trailing four quarters. The Zacks Consensus Estimate for the Zacks Rank #2 company’s 2024 earnings has been revised upward by 2.5% in the past 60 days.
Price and Consensus: ZWS
EnerSys: Headquartered in Pennsylvania, the company is a leading provider of stored energy solutions for industrial applications throughout the world. ENS is set to benefit from solid product offerings, a firm focus on product innovation and strength in the electric industrial forklift trucks market. Global megatrends, including 5G expansion, electrification, automation and decarbonization, are aiding the company.
Although shares of Zacks Rank #2 company have declined 2% year to date, it has rebounded 9.5% in the past six months. EnerSys delivered an earnings surprise of 1.5%, on average, beating estimates in the trailing four quarters. The Zacks Consensus Estimate for ENS’s fiscal 2025 (ending March 2025) earnings has been revised upward by 2.6% in the past 60 days.
Price and Consensus: ENS
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4 Stocks to Buy From the Promising Manufacturing Electronics Industry
The Zacks Manufacturing - Electronics industry is poised for growth on the back of steady demand across the electronic services end market, increasing adoption of advanced manufacturing technologies and product innovation efforts. A surge in e-commerce activities is also likely to aid the industry’s growth.
A slowdown in manufacturing activities and the contraction of new orders might continue to dent the performances of the industry players. Eaton Corporation plc (ETN - Free Report) , Zurn Elkay Water Solutions Corporation (ZWS - Free Report) , EnerSys (ENS - Free Report) and Powell Industries, Inc. (POWL - Free Report) are a few industry participants that are expected to capitalize on prevalent opportunities.
Industry Description
The Zacks Manufacturing-Electronics industry comprises companies that manufacture electronic products like battery chargers, battery accessories, outdoor cabinet enclosures, power transmission products, electrical motion controls and motive power devices. Some industry players also provide water-treatment products, engineered flow components, process equipment and turn-key systems. These companies offer state-of-the-art customer support and after-market services to end users. The firms are increasing investments in developing innovative technologies, boosting customer and employee experience, and supply-chain modernization programs. The manufacturing electronic companies sell products and services in various end markets, including robotics, semiconductor, defense, aerospace, medical equipment and satellite communications.
3 Manufacturing Electronics Industry Trends in Focus
Weakness in the Manufacturing Sector: Persistent weakness in the manufacturing sector has been denting the demand in the industry. Per the Institute for Supply Management’s (“ISM”) report, the Manufacturing Purchasing Manager’s Index touched 46.8% in July, down from 48.5% in June. A figure less than 50% indicates a contraction in manufacturing activity. After breaking a contraction streak of 16 months by growing in March, the manufacturing sector contracted for the fourth consecutive month in July. Also, the New Orders Index remained in the contraction territory for the fourth consecutive month, registering 47.4% in July.
Strength in the Electronics Services Market: Despite a slowdown in manufacturing activities, demand across key end markets has been stable. Electronics manufacturers are steadily benefiting from the higher adoption of advanced manufacturing technologies and processes by original equipment manufacturers. The requirement for integrating advanced electronic components into machinery and electronic devices has been supporting the electronics manufacturing services market. In addition, a few industry players with wide exposure to the booming medical and life science markets are witnessing a positive momentum across their businesses due to sturdy demand for their products and solutions. A surge in the e-commerce business has also been boosting several industry participants’ prospects.
Technological Advancement Benefits: With the gradual development of business models and cutting-edge technologies, a number of industry players have been banking on digitizing their business operations for a while now. With digitization, businesses are gaining a detailed insight into their operational performances, demand cycles, delivery status and supply-chain issues. This, in turn, is helping them bolster their competitiveness in the market with enhanced operational productivity, product quality and lower costs.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Manufacturing – Electronics industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #15. This rank places it in the top 6% 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 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 2 to 1.
Given the strong near-term prospects of the industry, we will present a few noteworthy stocks for your consideration. But it is worth looking at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Sector & Lags the S&P 500
The Zacks Manufacturing – Electronics industry has outperformed the broader sector but lagged the Zacks S&P 500 composite index in the year-to-date period.
Over this period, the industry has gained 8.2% compared with the sector’s and S&P 500 Index’s growth of 7.9% and 18.1%, respectively.
Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing stocks, the industry is currently trading at 22.99X compared with the S&P 500’s 21.72X. It is also above the sector’s P/E ratio of 19.16X.
Over the past five years, the industry has traded as high as 28.43X, as low as 14.73X and at the median of 22.26X, as the chart below shows.
Price-to-Earnings Ratio vs SP500
Price-to-Earnings Ratio vs Sector
4 Manufacturing - Electronics Stocks to Buy
Powell Industries: Headquartered in Houston, TX, the company is engaged in designing, manufacturing and distributing custom-engineered equipment and systems. The company has been witnessing several favorable trends across its oil, gas and petrochemical end markets that include growth in energy transition projects, such as biofuels, carbon capture and hydrogen. Also, significant project awards, supported by high investments in LNG, related gas processing and petrochemical processes, are likely to drive its performance in the quarters ahead. POWL currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Powell Industries have soared 118.1% in the year-to-date period. The company reported better-than-expected results in the trailing four quarters, the average being 69.9%. The Zacks Consensus Estimate for the company’s fiscal 2024 (ending September 2024) earnings has been revised upward by 32.9% in the past 60 days.
Price and Consensus: POWL
Eaton: Headquartered in Dublin, Ireland, this is a diversified power management company and a global technology leader in electrical components and systems. Eaton is benefiting from improving end market conditions, increasing demand from the new AI data center, solid backlog level, and product development initiatives through investments in research and development.
The Zacks Rank #2 (Buy) company’s shares have rallied 23.3% in a year-to-date-period. The company reported better-than-expected results in each of the last four quarters, the average being 4.7%. The Zacks Consensus Estimate for its 2024 earnings has been revised upward by 1.5% in the past 60 days.
Price and Consensus: ETN
Zurn Elkay Water Solutions: Based in Milwaukee, WI, the company is a designer, manufacturer and marketer of water management solutions primarily in the United States and Canada. ZWS is poised to gain from the growing awareness of the need for clean, filtered drinking water, solid demand for its products and solutions, and its focus on operational execution.
Year to date, shares of Zurn Elkay Water Solutions have gained 9.1%. The company delivered an earnings surprise of 8.8%, on average, beating estimates in the trailing four quarters. The Zacks Consensus Estimate for the Zacks Rank #2 company’s 2024 earnings has been revised upward by 2.5% in the past 60 days.
Price and Consensus: ZWS
EnerSys: Headquartered in Pennsylvania, the company is a leading provider of stored energy solutions for industrial applications throughout the world. ENS is set to benefit from solid product offerings, a firm focus on product innovation and strength in the electric industrial forklift trucks market. Global megatrends, including 5G expansion, electrification, automation and decarbonization, are aiding the company.
Although shares of Zacks Rank #2 company have declined 2% year to date, it has rebounded 9.5% in the past six months. EnerSys delivered an earnings surprise of 1.5%, on average, beating estimates in the trailing four quarters. The Zacks Consensus Estimate for ENS’s fiscal 2025 (ending March 2025) earnings has been revised upward by 2.6% in the past 60 days.
Price and Consensus: ENS