The Zacks Manufacturing-Electronics industry comprises companies that manufacture electronic products like battery charges, battery accessories, outdoor cabinet enclosures, power transmission products, electrical motion controls, water management products and motive power devices. Also, the firms offer state-of-the-art customer support and after-market services to end-users.
Manufacturing electronic companies sell products and services in various types of end-markets, including robotics, semiconductor, defense, aerospace, medical equipment and satellite communications.
Here are the three major industry themes:
We believe that U.S. manufacturing companies have been benefiting from the government's emphasis on infrastructure development and technological advancement in manufacturing processes. Notably, many electronics manufacturers have resorted to digitalizing their business operations as technologies and business models are getting evolved gradually. With the digitalization, businesses are gaining better insight into their operational performance, supply-chain issues, delivery status and demand cycles. This has been benefiting businesses in enhancing productivity, product quality and lowering costs, thus, improving competitiveness. Also, we believe that the impetus provided by President Trump’s business-friendly policies, including the corporate tax overhaul, streamlining of business regulations and higher government spending, will continue to support electronic product manufacturing companies. In addition to these, the industry is witnessing a surge in e-commerce business, which has opened up opportunities for the industry participants.
Growing adoption of the latest manufacturing technologies and processes by original equipment manufacturers has led to increased integration of advanced electronic components into electronic devices. This is likely to continue supporting the electronics manufacturing services market. In addition, companies like Emerson Electric Co. (EMR), which have exposure to medical and life science markets, are witnessing strength across their businesses, owing to robust growth in demand for their products and solutions.
The COVID-19 outbreak has dealt a major blow to the manufacturing industry, which was already reeling under U.S.-China trade tensions. Low household demand for goods and services, temporary operational shutdowns, supply-chain disruptions, and the impacts of the restrictions imposed by the government to contain the coronavirus outbreak, have adversely impacted the industry. Several companies, including A. O. Smith Corporation (AOS), EnerSys (ENS) and Rexnord Corporation (RXN), have not provided their annual guidance, owing to the uncertain environment arising from the pandemic. Also, per the latest Manufacturing ISM Report published on Jun 1, the Purchasing Managers’ Index (“PMI”) for May 2020 came in at 43.1%. Notably, any PMI reading below 50 indicates the contraction of manufacturing activities. It is worth noting here that the manufacturing sector contracted for three consecutive months since March 2020. In addition, the uncertain demand environment created by the trade tariffs is likely to continue hurting the profitability of manufacturing companies in the near term.
Zacks Industry Rank Indicates Bright Prospects
The Manufacturing – Electronics industry belongs to a 16-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #42, which places it in the top 17% 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 bright 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.
Before we present a few Manufacturing – Electronics stocks, which look promising, it is worth taking a look at the industry’s performance and valuation picture.
Industry Underperforms S&P 500, Outperforms Sector
The Zacks Manufacturing – Electronics industry has underperformed the S&P 500, while outperformed its sector in the past year. The stocks in the industry have collectively gained 7.1% compared with the S&P 500’s rally of 10.5% and against the Zacks Industrial Products sector’s decline of 2.8%.
One-Year Price Performance
Manufacturing – Electronics Industry’s Valuation
Price/Earnings (P/E) ratio is commonly used for valuing manufacturing stocks.
The industry’s forward 12-month P/E ratio is 24.26. This clearly shows that the industry is trading above the S&P 500’s forward 12-month P/E ratio of 23.05 and the sector’s 22.75.
Over the past five years, the industry has traded at the highest level of 24.26X forward 12-month earnings and lowest level of 13.13X. The median level was 17.26X over the same period.
Manufacturing – Electronics Industry’s Valuation Versus Sector
Manufacturing – Electronics Industry’s Valuation Versus S&P 500
Owing to the prevalent opportunities, we believe that investment in the industry may be prudent at the moment.
We present promising electronic product manufacturing stocks, which are well-positioned to capitalize on the opportunities.
II-VI Incorporated (IIVI): The stock of this Saxonburg, PA-based company currently sports a Zacks Rank #1 (Strong Buy). The company has rallied 46.1% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company has a positive earnings surprise of 52.08%, on average, for the trailing four quarters. It matched estimates twice, surpassed the same once, while missing in one. In the past 30 days, the Zacks Consensus Estimate for the company’s bottom line has improved 25.5% for fiscal 2020 (ending June 2020).
Price and Consensus: IIVI
Schneider Electric S.E. (SBGSY): This Rueil-Malmaison, France-based company currently sports a Zacks Rank #1. Over the past year, the stock has gained 28.4%.
Notably, in the past 30 days, the Zacks Consensus Estimate for the company’s bottom line has been unchanged at 90 cents for 2020.
Price and Consensus: SBGSY
We present two more companies that investors may prefer holding on to at current levels.
Regal Beloit Corporation (RBC): The stock of this Beloit, WI-based company currently carries a Zacks Rank #3 (Hold). Over the past year, the company has gained 6.6%.
Notably, the company surpassed earnings estimates thrice and missed once in the trailing four quarters. It boasts a positive earnings surprise of 5.69%, on average, for the past four quarters. In the past 30 days, the Zacks Consensus Estimate for the company’s bottom line has improved 3.8% for 2020.
Price and Consensus: RBC
EnerSys (ENS): This Reading, PA-based company currently carries a Zacks Rank #3. Over the past year, the stock has gained 7.5%.
In the past 30 days, the Zacks Consensus Estimate for the company’s bottom line has improved 2.6% for fiscal 2021 (ending March 2021) on one upward estimate revision.
Price and Consensus: ENS
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Schneider Electric SE (SBGSY) : Free Stock Analysis Report
Rexnord Corporation (RXN) : Free Stock Analysis Report
Regal Beloit Corporation (RBC) : Free Stock Analysis Report
IIVI Incorporated (IIVI) : Free Stock Analysis Report
Enersys (ENS) : Free Stock Analysis Report
Emerson Electric Co. (EMR) : Free Stock Analysis Report
A. O. Smith Corporation (AOS) : Free Stock Analysis Report
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