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Bleak Outlook for Electronics Miscellaneous Components Stocks

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The Zacks Electronics - Miscellaneous Components industry primarily comprises companies that provide a wide range of electronic component products. Their offerings include power control as well as sensor technologies to mitigate equipment damage, test products for safety and advanced medical solutions.

The industry participants cater to varied end markets such as telecommunications, automotive electronics, medical devices, industrial, transportation, energy harvesting, defense and aerospace electronic systems, as well as consumer electronics. Its customers mainly consist of original equipment manufacturers, independent electronic component distributors and electronic manufacturing service providers.

One of the prominent stocks in this industry is TE Connectivity Ltd. (TEL - Free Report)

Here are the industry’s three major themes:

  • As majority of the industry participants have their manufacturing operations in China and South-East Asia, the ongoing trade dispute between the United States and China, including the restriction on sales to Huawei is impacting industry players, particularly in areas of robotics, industrial automation and semiconductor applications.
     
  • Rising demand for products like ceramic and tantalum capacitors, Electro-Magnetic Compatible (EMC) devices, sensors and sensor-based measurement systems bode well for industry participants. However, trade-war driven increases in raw material costs, rising freight expenses and volatility in commodity prices pose significant challenges.
     
  • Demand for electronics continues to rise, driven by different factors, including growing use of electronic devices in daily life, increasing complexity of electronic products, growing demand for AI in emerging markets and the ongoing development of new solutions for energy generation and conservation, thus benefiting industry participants.

 

Zacks Industry Indicates Dull Prospects

The Zacks Electronics - Miscellaneous Components industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #210, which places it in the bottom 17% 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 weak 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.

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 Lags Sector But Outperforms S&P 500

The Zacks Electronics - Miscellaneous Components industry has underperformed the broader Zacks Computer and Technology Sector but outperformed the S&P 500 composite over the past year.

The industry has gained 13.9% over this period compared with the S&P 500’s rally of 13.7% and the broader sector’s gain of 16.4%.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing electronics - miscellaneous components stocks, the industry is currently trading at18.15X versus the S&P 500’s 17.27X and the sector’s 20.36X.

Over the past five years, the industry has traded as high as 20.49X, as low as 13.61X and recorded a median of 16.10X, which is depicted in the charts shown below.

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

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

Bottom Line

The development of new products and solutions in robotics, industrial automation, hybrid transportation systems, electronic controls for engines and industrial machinery, smart phones and portable devices, GPS navigation, as well as smart and connected (Internet of Things) devices should drive growth. However, trade tensions and volatility in prices of commodities like tantalum and ceramic powders are pressing concerns.

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

Stoneridge, Inc. ((SRI - Free Report) ) is a manufacturer of engineered electrical and electronic components, modules and systems for the automotive, medium and heavy-duty truck, and agricultural vehicle markets. The company has gained 47.5% over the past year. The company, which currently has a Zacks Rank #1, delivered average four-quarter positive earnings surprise of 22.27%.

Price and Consensus: SRI

OSI Systems, Inc. ((OSIS - Free Report) ), a manufacturer of specialized electronic systems and components for critical applications in the homeland security, healthcare, defense and aerospace industries, has gained 42.3% over the past year. The company, which currently has a Zacks Rank #2, delivered average four-quarter positive earnings surprise of 16.91%.

Price and Consensus: OSIS

Universal Display Corporation ((OLED - Free Report) ) is a leading developer of technology and intellectual property (IP) for the organic light emitting diodes market. It has gained 67.5% over the past year. The company, which currently has a Zacks Rank #2, delivered average four-quarter positive earnings surprise of 61.92%.

Price and Consensus: OLED

BWX Technologies, Inc. ((BWXT - Free Report) ), which supplies precision manufactured components and services to the commercial nuclear power industry, has lost 0.2% over the past year. The company, which currently has a Zacks Rank #2, delivered average four-quarter positive earnings surprise of 7.01%.

Price and Consensus: BWXT

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