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Zacks Industry Outlook Highlights: Apple, HP and Lenovo

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Zacks Equity Research
·9 min read
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For Immediate Release

Chicago, IL – February 4, 2021 – Today, Zacks Equity Research discusses Computers, including Apple Inc. AAPL, HP Inc. HPQ and Lenovo Group Limited LNVGY.

Link: https://www.zacks.com/commentary/1256574/3-stocks-to-buy-in-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 AppleHP and Lenovo Group.

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, the 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, AMD, Samsung and MediaTek, among others.

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 been proved more productive as it lowers training time. Moreover, the coronavirus-induced remote working and online learning model bodes well for industry participants as demand is expected to increase for desktops and laptops. IDC expects PC shipments to increase 1.4% in 2021 driven by work from home and remote education.

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 #2, which places it in the top 1% 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 Mar 31, 2020, the industry’s earnings estimates for 2020 have moved up 30.8%.

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 67.2% over this period compared with the S&P 500’s increase of 16.3% 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 28.48X compared with the S&P 500’s 22.22X. It is also above the sector’s forward-12-month P/E of 27.94X.

Over the last five years, the industry has traded as high as 32.32X, as low as 10.12X and at the median of 14.95X.

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 620 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 App Store. This Zacks Rank #1 (Strong Buy) company recently unveiled Apple One bundled plan, which is expected to drive Services revenues further. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for fiscal 2021 earnings has moved up 10.9% to $4.47 per share over the past 30 days. Shares are up 69.4% in the past year.

Lenovo Group: This Hong Kong-based company is dominating the PC market. This Zacks Rank #2 (Buy) 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 fourth quarter of 2020, Lenovo retained the top spot with a 27.1% market share, followed by HP’s 19.8%. The next three positions are held by Dell, Apple and Acer Group, with a market share of 16.6%, 8.7%, and 6%, respectively.

Lenovo’s position has also improved in the server market. Per IDC’s third-quarter report, Lenovo was placed in the fourth spot with market share improving 50 basis points on a year-over-year basis. Markedly, Dell Technologies and Hewlett Packard tied at the #1 position.

The Zacks Consensus Estimates for fiscal 2021 earnings has risen 9.4% to $1.98 per share over the past 30 days. The stock is up 83.4% in the past year.

HP – This Zacks Rank #2 company is benefiting from solid PC demand amid the COVID-19 pandemic-led remote working and online learning wave. Solid revenue growth in retail solutions business and gaming as well as services orders is a positive. HP has been launching several innovative models in the PC segment as well as in the Printing segment. We believe that the continuous product launches will help this Palo Alto, CA-based company stay afloat in the current uncertain macroeconomic environment.

Furthermore, stringent cost-control measures are expected to drive margins over the long run. Moreover, HP expects to return at least $1 billion to shareholders every quarter in the near term, which is encouraging.

The consensus mark for fiscal 2021 earnings stayed at $2.67 per share over the past 30 days. The stock is up 15.5% in the past year.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>

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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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