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The Zacks Electronics – Miscellaneous Components industry is benefiting from the ongoing automation drive, and increased spending by manufacturers of semiconductors, automobiles, machinery and mobile phones. Notably, industry players like Factory FN, Ninety NOW, OSI Systems OSIS and American Superconductor AMSC are well-poised to benefit from the solid adoption of AI and the democratization of IoT techniques, which are transforming robotics, industrial automation, transportation systems, retail and healthcare. Easing supply-chain constraints are also benefiting the industry participants.
However, a challenging global macroeconomic environment and end-market volatility worldwide are concerning for the underlined industry. Rising inflationary pressure, growing geo-political tensions and foreign-currency headwinds are taking a toll on the industry players.
Industry Description
The Zacks Electronics – Miscellaneous Components industry primarily comprises companies providing various accessories and parts used in electronic products. The industry participants’ offerings include power control and sensor technologies to mitigate equipment damage, testing products for safety, and advanced medical solutions. They cater to varied end markets, such as telecommunications, automotive electronics, medical devices, industrial, transportation, energy harvesting, defense and aerospace electronic systems, and consumer electronics. Customers in this industry are mainly original equipment manufacturers, independent electronic component distributors and electronic manufacturing service providers.
3 Trends Shaping the Future of Electronics – Miscellaneous Components Industry
Automation Boom a Tailwind: The requirement for faster, more powerful and energy-efficient electronics leads to increased automation. Control systems, such as computers, and robots and information technologies for handling different processes and machinery, are driving the industry. The growing installation of collaborative robots, which add efficiency to production processes by working with production workers, will benefit the industry participants. IoT-supported factory automation solutions are other contributing factors. The evolution of smart cars and autonomous vehicles is expected to drive growth for the industry.
Miniaturization Remains a Key Lever: The industry participants are benefiting from the ongoing transition in semiconductor manufacturing technology. Demand for advanced packaging, enabling the miniaturization of electronic products, remains strong. The consistent shift to smaller dimensions, the rapid adoption of device architectures like FinFET transistors and 3D-NAND, and the increasing utilization of new manufacturing materials to increase transistor and bit density are driving the demand for solutions provided by industry players.
Geo-political Tensions are Worrisome: The ongoing Russia-Ukraine war and, the souring relationship between the United States and China are headwinds. Increasing dependency on AI-backed electronic devices on semiconductors and current restrictions ordered by the United States on trading with China, which remains the main hub for chip production, is a significant negative for the underlined industry.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Electronics – Miscellaneous Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #66, placing it in the top 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bearish 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 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 June 30, 2024, the industry’s earnings estimates for the current year have moved 0.9% up.
Before we present a few stocks worth considering for your portfolio, let us look at the industry’s recent stock-market performance and the valuation picture.
Industry Underperforms S&P 500 & Sector
The Zacks Electronics – Semiconductors industry has underperformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.
The industry has returned 12.7% over this period compared with the S&P 500’s growth of 25.7% and the broader sector’s rally of 33%.
One-Year Price Performance
Industry’s Current Valuation
Based on the forward 12-month price to earnings, a commonly-used multiple for valuing electronics – miscellaneous components stocks, the industry is currently trading at 19.79X compared with the S&P 500’s 21.45X and the sector’s 26.07X.
In the past five years, the industry has traded as high as 27.04X, as low as 15.98X and recorded a median of 21.33X, depicted in the charts below.
Price/Earnings Ratio (F12M)
4 Electronics – Miscellaneous Components Stocks to Buy
American Superconductor: The Ayer, MA-based leading energy technologies company develops and sells a wide range of products based on power electronic systems and high-temperature superconductor wires. American Superconductor is riding on solid momentum in its new energy power systems and ship protection systems, which is driving its Grid revenues. The growing shipment of 3-megawatt electrical control systems (“ECS”) is benefiting its Wind business.
This Zacks Rank #1 (Strong Buy) company remains well-poised to gain substantial traction across military and navy markets on the back of its robust Grid business. Its new energy product lineup in the power grid is a positive. Additionally, the company’s recent acquisition of NWL, which has expanded its product offerings in the military and industrial sectors, is expected to accretive to earnings per share.
You can see the complete list of today’s Zacks #1 Rank stocks here.
American Superconductor has gained 178.3% in the past year. The Zacks Consensus Estimate for AMSC’s fiscal 2024 earnings has been revised upward by 210% to 31 cents per share in the past 60 days.
Price and Consensus: AMSC
factory: The Bangkok, Thailand-based company offers advanced optical packaging, precision optical, and electro-mechanical and electronic manufacturing services to original equipment manufacturers of complex products. It is benefiting from a favorable demand environment. Further, a solid momentum across optical communications products is aiding Fabrinet’s financial performance.
The Zacks Rank #2 (Buy) player will likely remain on the growth trajectory, owing to the rising momentum across optical communications OEM customers. Increasing demand for optical communications components and modules, driven by growing outsourcing production activities to third parties by OEMs, is a tailwind. The company’s strengthening AI product offerings are other tailwinds.
Fabrinet has gained 49.6% in the past year. The Zacks Consensus Estimate for fiscal 2025 earnings has moved north by 3.9% to $9.91 per share in the past 60 days.
Price and Consensus: FN
Ninety: The Bedford, MA-based company designs, develops, manufactures, and sells precision photonic and motion-control components and subsystems to original equipment manufacturers (OEM) in the medical equipment and advanced industrial technology markets. The company is benefiting from strong momentum across medical applications, thanks to which it is experiencing solid relationships with leading OEMs.
The Zacks Rank #2 player is well-poised to capitalize on the growing demand for robotics and automation, minimally invasive and robotic surgery, and precision medicine on the back of its robust portfolio. The company’s sticky business model is a plus.
Novanta has returned 11.3% in the past year. The Zacks Consensus Estimate for 2024 earnings has moved 1.2% north to $3.30 per share in the past 60 days.
Price and Consensus: NOVT
OSI Systems: This Hawthorne, CA-headquartered company is a vertically integrated designer and manufacturer of specialized electronic systems and components. Its products are primarily utilized for critical homeland security, healthcare, defense and aerospace applications. The company is riding on its strong portfolio of security screening solutions. Its strong contract wins for mobile cargo, vehicle inspection, and advanced security inspection technology and services are major positives.
The Zacks Rank #2 player also benefits from its strengthening optoelectronics business. Its growing customer base across multiple industries is bringing higher-margin opportunities to the business.
OSI Systems has gained 23.8% in the past year. The Zacks Consensus Estimate for OSIS’ fiscal 2025 earnings has been revised upward by 3.1% to $8.93 per share in the past 60 days.
Price and Consensus: OSIS
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Fabrinet (FN) : Free Stock Analysis Report
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