3 Electronics Stocks to Escape Pandemic-Led Disruptions
Supply-chain disruptions and end-market dynamics across the world, owing to the pandemic, have affected the Zacks Electronics - Miscellaneous Components industry. Depressed linear markets, growing geo-political tensions and rising inflationary pressure are exerting pressure on the industry’s prospects.
However, TE Connectivity TEL, nVent Electric NVT and Universal Display OLED 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 manufacturers of semiconductors, automobiles, machinery and mobile phones are other positives for industry players.
Industry Description
The Zacks Electronics - Miscellaneous Components industry primarily comprises companies that provide a wide range of 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. Its primary customers are original equipment manufacturers, independent electronic component distributors and electronic manufacturing service providers.
4 Trends Shaping the Future of Electronics - Miscellaneous Components Industry
Supply-Chain Disruptions Are a Concern: Industry players are reeling under the impacts of the coronavirus-induced macroeconomic woes. The pandemic-led supply-chain challenges have been affecting these companies for a while. Production delays are a major concern too. The panoptic impact of the COVID-led supply crisis is wreaking havoc on new bookings of the industry players.
Labor Shortages a Concern: The pandemic-induced labor crisis is affecting the production capacity of electronic companies. The companies are struggling to meet the rising demand, following the reopening of economies, worker absenteeism and short-term shutdowns. Labor crunch is dampening the industry participants’ prospects by increasing their lead times.
Automation Boom a Tailwind: The requirement for faster, more powerful and energy-efficient electronics is leading to increased automation. The use of control systems, such as computers and robots and information technologies for handling different processes and machinery, is driving the industry. The growing installation of collaborative robots, which add efficiency to production processes by working with production workers, will benefit 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 are benefiting from the ongoing transition in semiconductor manufacturing technology. The 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 by these firms.
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 #196, placing it in the bottom 22% 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 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 Feb 28, 2023, the industry’s earnings estimates for the current year have moved 13.6% 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 the 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 6% over this period compared with the S&P 500’s gain of 14.5% and the broader sector’s rally of 22.8%.
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 24.07X compared with the S&P 500’s 20.08X and the sector’s 25.32X.
In the past five years, the industry has traded as high as 25.96X, as low as 14.55X and recorded a median of 19.92X, depicted in the charts below.
Price/Earnings Ratio (F12M)
3 Electronics - Miscellaneous Components Stocks to Watch
nVent Electric: This London, U.K.-based entity is gaining from portfolio strength and modular and digital platforms. NVT’s growth, profits and cash strategies remain noteworthy. Strengthening relationships with strategic channel partners are expected to continue benefiting it.
The Zacks Rank #1 (Strong Buy) player, which is a provider of electrical connection and protection solutions, is optimistic about strong demand for its products and solutions. A solid execution of its strategy across high-growth verticals, product introductions, global expansion and strategic acquisitions are other tailwinds.
You can see the complete list of today’s Zacks #1 Rank stocks here.
nVent Electric has gained 62.7% in the past year. The Zacks Consensus Estimate for NVT’s 2023 earnings has been revised 4.5% upward to $2.78 per share in the past 60 days.
Price and Consensus: NVT
Universal Display: The Ewing, NJ-based is gaining from strength in its UniversalPHOLED phosphorescent Organic Light Emitting Diodes (OLED) technology that produces OLEDs that are four times more efficient than fluorescent OLEDs and current LCDs. The company’s buyout of Phosphorescent OLED Emitter Intellectual Property assets of Merck KGaA remains noteworthy.
The Zacks Rank #2 (Buy) player which is a leading developer of technology and intellectual property (IP) for the OLED market, owns a portfolio of around 5,500 patents worldwide. With this, the company is likely to capitalize on the growing adoption of OLED technology worldwide.
Universal Display has gained 32% in the past year. The Zacks Consensus Estimate for 2023 earnings has been stable at $3.85 per share in the past 60 days.
Price and Consensus: OLED
TE Connectivity: The Switzerland-based company is benefiting from growing proliferation of electric vehicles and strong content trends in electronification. Also, solid momentum across automotive applications remains a positive. Further, growing traction in the field of commercial transportation is another positive. Additionally, improving commercial aerospace and strength in renewable applications is a tailwind.
This Zacks Rank #3 (Hold) 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 16.2% in the past year. The Zacks Consensus Estimate for its fiscal 2023 earnings has been revised 0.15% upward to $6.57 per share over the past 60 days.
Price and Consensus: TEL
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TE Connectivity Ltd. (TEL) : Free Stock Analysis Report
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