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Zacks Industry Outlook Highlights: Apple, Lenovo and 3D Systems

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·9 min read
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For Immediate Release

Chicago, IL – June 11, 2021 – Today, Zacks Equity Research discusses Computers, including AppleInc. AAPL, Lenovo Group Limited LNVGY and 3D Systems Corporation DDD.

Link: https://www.zacks.com/commentary/1685418/3-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 AppleLenovo and 3D Systems.

Although extensive job losses are expected to hurt demand for high-end laptops and smartphones in the near term, the availability of 5G-based iPhones has been a key catalyst. Further, launch of foldable as well as AI and ML-infused smartphones, tablets, wearables and hearables are major growth drivers for the industry participants.

Industry Description

The Zacks Computer – Mini Computers industry comprises prominent companies like Apple and HP that offer devices including smartphones, desktops, laptops, printers, wearables and 3-D printers. Such devices are based either on Apple’s iOS, MacOS, iPadOS, WatchOS or on Microsoft Windows or on Google Chrome and Android operating systems. They predominantly use processors from Apple, Intel, AMD, Qualcomm, NVIDIA, Samsung, Broadcom and MediaTek, among others.

Expanding screen size, better display and enhanced storage capabilities have been key catalysts driving rapid proliferation of smartphones. This has been well-supported by faster mobile processors from the likes of Qualcomm, NVIDIA, Apple and Samsung.

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. 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 #29, which places it in the top 12% 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 Jun 30, 2020, the industry’s earnings estimates for 2021 have moved up 34.6%.

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 Beats 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 surged 52.5% over this period compared with the S&P 500’s increase of 42.9% and broader sector’s rally of 38.1%.

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 23.18X compared with the S&P 500’s 21.80X. However, it is below the sector’s forward-12-month P/E of 27.15X.

Over the last five years, the industry has traded as high as 32.32X, as low as 10.66X and at the median of 15.48X.

3 Computer Stocks to Buy Right Now

Apple: The iPhone maker is benefiting from continued momentum in the Services segment, driven by robust performance of App Store, Apple Music, video and cloud services. Apple’s endeavors to open up its ecosystem, through partnerships with the likes of Samsung and Amazon, are a positive for the Services segment.

Subscription-based video streaming, news and gaming services are expected to benefit from Apple’s strong installed base. Moreover, its wearables and hearables businesses are expected to be driven by solid demand for Apple Watch and Airpods. Additionally, strong demand for 5G-enabled iPhone is a major growth driver.

Further, the Cupertino, CA-based company currently has more than 660 million paid subscribers across its Services portfolio. The App Store continues to draw the attention of prominent developers from around the world, helping the company offer appealing new apps that drive App Store traffic.

Further, a growing number of AI-infused apps will attract more subscribers on the App Store. This Zacks Rank #2 (Buy) company’s Apple One bundled plan is expected to drive Services revenues further. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for fiscal 2021 earnings has moved up 1.4% to $5.17 per share over the past 30 days. Shares have risen 51.4% in the past year.

Lenovo Group: This Hong Kong-based company is dominating the PC market. This Zacks Rank #2 company is well-poised to gain from the ongoing remote working and online learning wave due to its ever-expanding portfolio.

Per Gartner’s latest report, in the first quarter of 2021, Lenovo retained the top spot with a 25.1% market share, followed by HP’s 21.4%. The next three positions are held by Dell, Apple and Acer Group, with a market share of 16.5%, 8%, and 5.7%, respectively.

Lenovo’s position has also improved in the server market. Per IDC’s fourth-quarter report, Lenovo and Huawei was placed in the fifth spot. Markedly, Dell Technologies and Hewlett Packard are tied at the #1 position.

The Zacks Consensus Estimates for fiscal 2021 earnings has risen 13.6% to $2.51 per share over the past 30 days. The stock has risen 116.4% in the past year.

3D Systems – This Zacks Rank #2 company is benefiting from robust healthcare performance driven by strong dental and medical applications end-market. Moreover, rebound in customer activity following pandemic-related shutdowns is a positive.

Cost structure by trimming cost of sales and operating expenses will boost margins over the long run. Moreover, the strategic move of selling Cimatron and GibbsCAM software businesses will help 3D Systems utilize its resources on more profitable additive manufacturing part.

The consensus mark for fiscal 2021 earnings has jumped 48% to 37 cents per share over the past 30 days. The stock has risen 317% in the past year.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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