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Outlook for Electronics Semiconductors Industry Looks Bright

Shalu Saraf

The Zacks Electronics - Semiconductors industry primarily comprises companies that provide a wide range of semiconductor technologies. Their offerings include packaging and test services, wafer cleaning, factory automation, face detection, and image recognition capabilities to develop smart and connected products.

The industry participants primarily cater to end markets that constitute consumer electronics, communications, computing, industrial and automotive.

Here are the industry’s three major themes:

  • The emerging trend of computing in smart devices is a key catalyst for this industry. These devices have their own computing and learning capabilities to perform smart functions like face detection, image recognition and video analysis. Therefore, these require high levels of processing power, speed, memory and low power consumption, which are provided by the industry participants.
     
  • Increasing adoption of AI techniques and machine learning tools in industries like gaming, automotive and blockchain are spurring demand for better graphics processors as well as graphics solutions, boding well for the industry. These graphics solutions help in increasing the speed of rendering images, along with improving image resolution and colour definition.
     
  • The increasing demand for miniaturization, greater functionality as well as improved thermal and electrical performance are pushing up the need for semiconductor packaging and test technologies, thereby providing strong growth opportunities to the industry participants.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Electronics - Semiconductors industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #98, which places it at the top 40% 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 solid 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 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 Nov 3, 2018, the industry’s earnings estimates for the current year has surged 190.6%.

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 & S&P 500

The Zacks Electronics - Semiconductors industry has surpassed the broader Zacks Computer and Technology Sector, and the Zacks S&P 500 Composite over the past year.

Over the same period, the industry has gained 3.5% compared with the S&P 500’s gain of 1.8% and the broader sector’s fall of 4.2%.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing electronics semiconductors stocks, the industry is currently trading at 12.08X versus the S&P 500’s 16.34X and the sector’s 18.41X.

Over the past five years, the industry has traded as high as 30.30X, as low as 6.85X and recorded a median of 12.18X, as shown in the charts below.

Price-to-Earnings (P/E) Ratio (F1)

Price-to-Earnings (P/E) Ratio (F1)

Bottom Line

The growing demand for advanced electronic equipment, including high-volume consumer electronic devices such as digital media players, smartphones, tablets, efficient packaging, machine vision solutions, robotics and cost-effective process technologies,should continue to drive the industry’s growth.

Here, we present four stocks that either have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and are well positioned to outperform the market. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amkor Technology, Inc. (AMKR), one of the largest providers of semiconductor packaging and test services, has lost 21.9% over the past year. The company, which currently has a Zacks Rank #1, delivered an average four-quarter positive earnings surprise of 84.17%.

Price and Consensus: AMKR

Cirrus Logic, Inc. (CRUS), a developer and manufacturer of single-wafer wet cleaning equipment, has gained 7% over the past year. The company, which currently carries a Zacks Rank #1, has an average four-quarter positive earnings surprise of 166.41%.

Price and Consensus: CRUS

Silicon Motion Technology Corporation (SIMO), a leading developer of microcontroller ICs for NAND flash storage devices and specialty RF ICs for mobile devices, has lost 19.3% over the past year. The company, which currently holds a Zacks Rank #1, recorded average four-quarter positive earnings surprise of 13.36%.                                        

Price and Consensus: SIMO

Diodes Incorporated (DIOD), a manufacturer and supplier of discrete and analog semiconductor products, primarily to the communications, computing, industrial, consumer electronics and automotive markets, has lost 10.1% over the past year. The company, which currently has a Zacks Rank #1, came up an average four-quarter positive earnings surprise of 8.33%.

Price and Consensus: DIOD

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Silicon Motion Technology Corporation (SIMO) : Free Stock Analysis Report
 
Diodes Incorporated (DIOD) : Free Stock Analysis Report
 
Cirrus Logic, Inc. (CRUS) : Free Stock Analysis Report
 
Amkor Technology, Inc. (AMKR) : Free Stock Analysis Report
 
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