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Wall Street Journal3 Electronics Stocks to Buy From a Prospering Industry
The Zacks Electronics – Miscellaneous Products industry has been suffering from challenging macroeconomic conditions, high levels of inventories with distributors, and steep interest rates. The global economic turmoil is expected to keep the semiconductor capex under check, which does not bode well for industry participants in the near term. However, players like Carrier Global CARR, Garmin GRMN and Trimble TRMB are benefiting from higher spending on advanced technologies, including augmented reality (AR), virtual reality (VR), and intelligent climate solutions. Continuing investments in data centers, high-performance computing and 5G end markets are the key catalysts. Fab (foundry) expansion in the United States, South Korea, Taiwan and China, as well as higher spending on memory equipment, is expected to drive growth in 2024 and beyond.
Industry Description
The Zacks Electronics – Miscellaneous Products industry includes a number of original equipment manufacturers of air-conditioning systems, green energy solutions, remote-control systems, GPS navigation, home automation systems, healthcare devices, industry/factory automation, robotics, semiconductor and optical applications, and energy management solutions. The industry is evolving on digital transformation and the growing demand for silicon across multiple markets. The increasing cost of manufacturing bodes well for equipment suppliers, while the growing demand for silicon is a positive for semiconductor companies. Apart from the United States, companies in this industry are based in Japan, Germany, the Netherlands and Switzerland. These companies either have manufacturing operations in China and South-East Asia or generate significant revenues from these regions.
3 Trends Shaping the Future of the Industry
Solid Capital Spending Drives Prospects: Technology transitions are driving product complexities, which are raising the demand for solutions provided by industry participants. Increasing investment in expanding manufacturing capacity by semiconductor companies is a key catalyst in the long run (irrespective of the near-term hiccups due to the challenging macroeconomic conditions). Since semiconductor companies are the major customers of miscellaneous electronics product manufacturers, the trend bodes well for industry participants. In addition, rising spending on advanced nodes — 7 nm, 5 nm, and 3 nm processes from logic and foundry customers — favors industry participants. Notably, logic and foundry spending is anticipated to be healthy this year.
Emerging Markets of Wearables, AR & VR Drive Growth: Industry participants are riding on strong demand for wearables and AR and VR-supported display systems in defense, industrial, consumer applications and healthcare end markets. The adoption of AR and VR is increasing due to the growing proliferation of the metaverse.
Challenging Macroeconomic Condition is a Headwind: Industry participants are suffering from a challenging macroeconomic condition globally, with enterprises showing reluctance in committing to multi-year deals. Persistent inflation and unfavorable forex trends do not bode well for industry participants.
Zacks Industry Rank
The Zacks Electronics – Miscellaneous Products industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #103, which places it in the top 41% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Sept. 30, 2024, earnings estimates for the industry for the current year have moved north by 2%.
Given the bullish prospects, there are several stocks worth buying in the industry. But before we present those stocks, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500, Broader Sector
The Zacks Electronics – Miscellaneous Products industry has underperformed the S&P 500 and the broader Zacks Computer & Technology sector in the past year.
The industry has returned 1.9% during this period compared with the S&P 500 composite’s return of 36.1% and the broader sector’s appreciation of 41.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month P/E, which is a commonly used multiple for valuing Electronics-Miscellaneous products companies, we see that the industry is currently trading at 17.31X compared with the S&P 500’s 22.2X and the sector’s forward-12-month P/E of 25.88X.
Over the last five years, the industry has traded as high as 23.98X and as low as 11.31X, with the median being 16.94X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Buy Right Now
Carrier Global: This Palm Beach Gardens, FL-based company is a provider of intelligent climate and energy solutions.
Carrier’s focus on intelligent climate solutions and strategic acquisitions, including Viessmann Climate Solutions, bolstered growth and expanded free cash flow.
This Zacks Rank #2 (Buy) company’s shares have gained 41.8% year to date.
The Zacks Consensus Estimate CARR’s 2024 earnings has increased by a penny to $2.85 per share over the past 30 days.
Price and Consensus: CARR
Garmin: This Zacks Rank #2 stock is benefiting from strong momentum across the Fitness and Auto OEM segments. While strength in the Fitness segment is primarily attributed to advanced wearables demand, Auto OEM revenues are driven by increased shipments of domain controllers to BMW.
Strong momentum across the Aviation and Marine segments is a positive. Garmin’s growing focus on continued innovation, diversification, and market expansion to explore opportunities across all business segments is another positive.
The Zacks Consensus Estimate for 2024 has increased by three cents to $6.08 per share over the past 30 days. GRMN shares have jumped 29.3% year to date.
Price and Consensus: GRMN
Increasing recurring revenues in the revenue mix is improving visibility. Trimble’s initiatives to reduce debt improve balance sheet strength.
TRMB shares have gained 15.5% in the year-to-date period. The consensus mark for Trimble’s 2024 earnings has remained unchanged at $2.74 per share over the past 30 days.
Price and Consensus: TRMB
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Garmin Ltd. (GRMN): Free Stock Analysis Report
Trimble Inc. (TRMB): Free Stock Analysis Report
Carrier Global Corporation (CARR): Free Stock Analysis Report