2 Stocks to Buy From the Flourishing Computer Industry
Coronavirus outbreak has been beneficial for the Zacks Computer – Mini Computers industry as it raised demand for PCs and tablets significantly. Despite massive supply chain disruption, the ongoing work-from-home and online learning wave have been beneficial for industry participants like Apple AAPL and HP HPQ. Strong demand for high-end laptops and smartphones, particularly the availability of 5G-supported iPhones, has been a key catalyst. Further, the launch of foldable as well as AI and ML-infused smartphones, tablets, wearables and hearables is a major growth driver for the industry participants. However, industry-wide components supply constraints might impact PC, smartphone and printer sales in the near term.
Industry Description
The Zacks Computer – Mini Computers industry comprises companies that offer smartphones, desktops, laptops, printers, wearables and 3-D printers. Such devices are based either on iOS, MacOS, iPadOS, WatchOS, Microsoft Windows, or on Google Chrome and Android operating systems. They predominantly use processors from Apple, Intel, AMD, Qualcomm, NVIDIA and Samsung. Expanding screen size, better display and enhanced storage capabilities have been key catalysts driving the rapid proliferation of smartphones. This has been well-supported by faster mobile processors. Laptops, both consumer and commercial, have benefited from faster processors, sleek designs and expanded storage facilities. The addition of healthcare features has been driving demand for wearables.
3 Mini Computer Industry Trends to Watch Out For
Bring Your Own Device (BYOD) Aids Momentum: The industry is benefiting from the rapid adoption of BYOD in workplaces. Enterprises practicing BYOD allow employees to use their personal devices, including mobiles, laptops and tablets, for work purposes. BYOD helps in bridging communication gaps between remote workers and desk-bound employees, thereby improving process management and workflow. Moreover, BYOD has proved more productive as it lowers training time. Moreover, the coronavirus-induced remote working and online learning model bode well for industry participants as demand is expected to increase for desktops and laptops.
Impressive Formfactor Drives Demand: Expanding screen size, better display and enhanced storage capabilities have been key catalysts driving the rapid proliferation of smartphones and tablets. This has been well-supported by faster mobile processors from the likes of Qualcomm (Snapdragon-branded), NVIDIA (Tegra X1), Apple (A14 Bionic) and Samsung (Exynos 9609). Moreover, improved Internet penetration and speed along with the evolution of mobile apps have made smartphones indispensable for consumers. Further, the improved graphics quality is making smartphones suitable for playing games like PUBG and Fortnite. This is expected to boost demand for high-end smartphones and open up significant opportunities for device makers.
PCs Face Extinction Risk: Personal computers (desktops and laptops), be it Windows or Apple’s MacOS-based, have been facing the risk of extinction due to the rapid proliferation of smartphones and tablets. Stiff competition from smartphones has compelled global PC makers to not only upgrade hardware frequently but also add apps and cloud-based services to attract consumers. Nevertheless, the emergence of 5G, AI, machine learning and foldable computers is likely to be the key catalyst in expanding the total addressable market (TAM) of the PCs.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Computer – Mini Computers industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #38, which places it in the top 15% 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 bullish 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 position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic on this group’s earnings growth potential. Since Feb 28, 2021, the industry’s earnings estimates for 2022 have moved up 29%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Computer – Mini Computers industry has outperformed the broader Zacks Computer And Technology sector as well as the S&P 500 Index over the past year.
The industry has increased 36.2% over this period compared with the S&P 500’s increase of 12.5% and the broader sector’s rally of 1.3%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer stocks, we see that the industry is currently trading at 25.13X compared with the S&P 500’s 19.18X and the sector’s 23.51X.
Over the last five years, the industry has traded as high as 32.32X, as low as 11.49X and at the median of 16.68X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
2 Computer Stocks to Watch Right Now
Apple: This Zacks Rank #1 (Strong Buy) company is benefiting from continued momentum in the Services segment, driven by App Store, Cloud Services, Music, advertising and AppleCare. You can see the complete list of today’s Zacks #1 Rank stocks here.
Apple’s near-term prospects are bright, driven by new 5G-supported iPhones, revamped iPad and Mac line-up of devices, healthcare-focused Apple Watch, and an expanding App Store ecosystem. Apple’s ability to attract small developers has been a key catalyst. Moreover, Apple devices continue to gain traction among enterprises.
Apple currently has more than 785 million paid subscribers across its Services portfolio. The App Store continues to draw the attention of prominent developers worldwide, helping the company offer appealing new apps that drive App Store traffic. Further, a growing number of AI-infused apps will attract more subscribers to App Store.
The Zacks Consensus Estimate for fiscal 2022 earnings has moved up 5.9% to $6.15 per share over the past 30 days. The stock has risen 27.7% in the past year.
Price and Consensus: AAPL
HP: This Zacks Rank #2 (Buy) company is benefiting from solid demand for PCs amid the pandemic-led remote-working and online-learning wave.
Furthermore, stringent cost-control measures are expected to drive margin over the long run. Moreover, HP’s expectation of returning at least $4 billion to shareholders in fiscal 2022 is encouraging.
The Zacks Consensus Estimate for fiscal 2022 earnings has risen by a penny to $4.17 per share over the past 60 days. The stock has rallied 23.5% in the past year.
Price and Consensus: HPQ
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