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. Industry players like OSI Systems OSIS, TTM Technologies TTMI and American Superconductor AMSC are well-poised to benefit from the solid adoption of AI and the democratization of IoT, which are transforming robotics, industrial automation, transportation systems, retail and healthcare. Easing supply-chain constraints are benefiting the industry participants. However, a challenging global macroeconomic environment and end-market volatility are concerning for the industry. Persistent inflation, 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 #44, which places it in the top 18% 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 bright 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.
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 19.4% over this period compared with the S&P 500’s appreciation of 38.4% and the broader sector’s rally of 33.4%.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price to earnings (P/E), a commonly-used multiple for valuing electronics - miscellaneous components stocks, the industry is currently trading at 21X compared with the S&P 500’s 22.65X and the sector’s 27.02X.
In the past five years, the industry has traded as high as 27.04X and as low as 15.98X, with a median of 21.39X, depicted in the charts below.
Forward 12-Month Price-to-Earnings (P/E) Ratio
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3 Electronics - Miscellaneous Components Stocks to Buy
American Superconductor: This Ayer, MA-based company’s dominance in alternative energy solutions has been pivotal. Its cutting-edge offerings, from grid interconnection systems to high-temperature superconductor cables, cater to the surging demand for renewable energy and grid modernization. As the transition to green energy gains momentum, AMSC is well-positioned to ride this wave.
This Zacks Rank #1 (Strong Buy) company’s portfolio addresses key sectors like wind energy, marine systems and power grid resilience. These industries are booming due to the increasing global focus on clean energy and energy efficiency.
American Superconductor has appreciated 216.2% in the year-to-date period. The Zacks Consensus Estimate for AMSC’s fiscal 2025 earnings has been steady at 50 cents per share in the past 30 days.
Price and Consensus : AMSC
TTM Technologies: This Santa Ana, CA-based company is benefiting from strong demand for its solutions in aerospace and defense and data center computing end markets.
TTMI ended the third quarter of 2024 with a record program backlog of roughly $1.49 billion in the aerospace and defense market. Acquisitions of Anaren and Telephonics are helping TTM generate more than 50% of revenues from engineered and integrated electronic products in the aerospace and defense market, simultaneously expanding its operating margin.
TTM shares have returned 55.8% year to date. The Zacks Consensus Estimate for 2024 earnings has been steady at $1.59 per share in the past 30 days.
Price and Consensus : TTMI
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.
OSI 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.
This Zacks Rank #2 (Buy) company benefits from its strengthening optoelectronics business. OSI’s growing customer base across multiple industries bodes well for long-term prospects.
OSI Systems has returned 39.9% in the year-to-date period. The Zacks Consensus Estimate for OSIS’ fiscal 2025 earnings has been revised upward by a penny to $9.13 per share over the past 30 days.
Price and Consensus : OSIS
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
OSI Systems, Inc. (OSIS) : Free Stock Analysis Report
American Superconductor Corporation (AMSC) : Free Stock Analysis Report
TTM Technologies, Inc. (TTMI) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
