The global digital and IT revolution is giving a boost to the electronic components industry and providing it with long-term growth catalysts. The software and AI revolution that is affecting every industry automatically creates demand for electronic components as they are indispensable in the wider ecosystem of digitization. According to a 2022 report from Japan Electronics and Information Technology Industries Association, or JEITA, normalization of remote work and transition to EVs are two of the factors that are driving the demand of electronic components. JEITA cited its survey which found out that the electronics and information technology industry was expected to see a 1% YoY growth in production in 2022 to $3,436.8 billion. In 2023, the report said the production is expected to rise 3% YoY to reach $3,526.6 billion. The JEITA report acknowledged that the global electronics industry saw headwinds amid rising interest rates, inflation and geopolitical headwinds in 2022. The slowdown was also noticeable since the industry saw new highs in 2021 amid the popularity of remote work and a broader bullish trend in the market. However, the report said the electronics industry is expected to gain value based on organic growth catalysts. One of the primary catalyst for the industry is the wider deployment of electronic components in automobiles as countries apply stricter carbon emission and safety standards in addition to the EV boom.
In its manufacturing outlook report for 2023, Deloitte mentioned how digitization in the industry is creating new trends. Deloitte said that IoT, Cloud computing, edge computing and 5G are expected to shape the future of the manufacturing industry. The electronics industry also plays a key role and benefits from this growing digitization of the manufacturing space. As an example of how companies in the manufacturing space are reaching out to partner with specialized technology companies and research bodies to get ready for the future, Deloitte said that “an electronics manufacturer is partnering with a research university and a telecommunications company to develop a fully enabled private 5G production environment to test use cases for industrial facilities."
Deloitte also mentioned an important survey which shows which technologies manufacturing companies plan to focus on for the next 12 months to increase operational efficiencies. Almost all of the technologies that manufacturers are targeting to invest in in order to increase efficiencies are related to the wider IT and digital industry. Investments in these technologies will also directly help electronic components companies. For example, 62% of the surveyed manufacturers said that they plan to focus on Robotics & Automation in the next 12 months, while 60% said Data Analytics will be an area of focus for them. Some other key technologies on the radar of manufacturers surveyed by Deloitte include Cloud computing, AI, Edge Computing, VR, High Performance Computing, Blockchain and Quantum Technology.
A detailed report by McKinsey on the future outlook of the software and electronics market also gives some great insights into the true potential of the electronic components market. McKinsey said that by 2030 the global automotive software and electronics market is expected to reach $462 billion, growing at a CAGR of 5.5% from 2019 to 2030.
McKinsey also mentioned some data related to Electronic Control Units and Domain Control Units. Here’s what the report said:
“The ECU/DCU market is projected to grow to $144 billion by 2030 and is mostly driven by growth in DCUs. In 2019, DCUs made up less than 1 percent of the combined ECU/DCU market. We expect this share will increase to 16 percent by 2025 and to 43 percent by 2030. However, ECU/DCU market growth will be cut back by decreasing unit costs in some domain types and the consolidation of ECUs into DCUs. The centralization of the E/E architecture will continue to drive demand for more complex and powerful DCUs at the expense of traditional ECUs. DCU adoption will be highest within the infotainment and AD domains—both of which are expected to exceed 70 percent adoption by 2030.”
Best Electronic Component Stocks to Buy Now
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The Biggest Growth Catalyst for Electronic Components Industry
Almost every notable research report on the future of electronic components market counts EVs as perhaps the biggest growth driver for the industry. EVs require a gazillion of electronic components to ensure safety and efficiency of related systems. For example, according to McKinsey, the automotive sensor market alone is expected to grow from $23 billion in 2019 to $46 billion in 2030, driven by demand of LiDAR, cameras, and radars.
Our Methodology
For this article, we scanned Insider Monkey’s database of 943 hedge funds and picked 13 companies operating in the electronic components industry with the highest number of hedge funds. These are the best electronic components stocks to buy according to hedge funds.
Toronto, Canada-based electronics manufacturing services company Celestica Inc. (NYSE:CLS) has gained about 32% year to date as of July 10. At the end of the first quarter of 2023, 15 hedge funds tracked by Insider Monkey had stakes in Celestica Inc. (NYSE:CLS). The most notable stakeholder of Celestica Inc. (NYSE:CLS) was Richard S. Pzena’s Pzena Investment Management which had a $75 million stake in the company.
Bel Fuse, Inc. (NASDAQ:BELFB) makes equipment for circuit protection, cinch connectivity solutions, Steward connectors, TRP connectors, among other products.
Bel Fuse, Inc. (NASDAQ:BELFB) is also a dividend-paying company. In May the company declared $0.07 per share quarterly dividend.
In April Bel Fuse, Inc. (NASDAQ:BELFB) posted Q1 results. GAAP EPS in the quarter came in at $1.15, beating estimates by $0.40. Revenue in the quarter jumped 26% year over year to $172.3 million, beating estimates by $25.81 million.
As of the end of the first quarter of 2023 17 hedge funds tracked by Insider Monkey had stakes in Bel Fuse, Inc. (NASDAQ:BELFB). The biggest stakeholder of Bel Fuse, Inc. (NASDAQ:BELFB) during this period was George Mccabe’s Portolan Capital Management which owns a $19 million stake in the company.
Benchmark Electronics, Inc. (NYSE:BHE) is a dividend-paying stock in our list of the best electronic components stocks to buy now. Benchmark Electronics, Inc. (NYSE:BHE)’s EPS in the first quarter of 2023 came in at $0.42, meeting estimates. Revenue in the quarter jumped 9.3% year over year to $695 million, surpassing estimates by $35 million.
Engineering and manufacturing company Plexus Corp. (NASDAQ:PLXS) ranks 10th in our list of the best electronic components stocks to buy now. As of the end of the first quarter of 2023, 19 hedge funds tracked by Insider Monkey had stakes in Plexus Corp. (NASDAQ:PLXS). The biggest stakeholder of Plexus Corp. (NASDAQ:PLXS) during this period was Richard Driehaus’s Driehaus Capital which owns a $10.3 million stake in the company.
Illinois-based electronic manufacturing company Littelfuse, Inc. (NASDAQ:LFUS) makes circuit protection products. electronic switches and automotive sensors. Littelfuse, Inc. (NASDAQ:LFUS) is up 30% year to date through July 10.
Insider Monkey’s database of 943 hedge funds shows that 22 funds had stakes in Littelfuse, Inc. (NASDAQ:LFUS). The biggest stakeholder of Littelfuse, Inc. (NASDAQ:LFUS) was Impax Asset Management of Ian Simm which owns a $240 million stake in the company.
Mairs & Power Small Cap Fund made the following comment about Littelfuse, Inc. (NASDAQ:LFUS) in its first quarter 2023 investor letter:
“Littelfuse, Inc. (NASDAQ:LFUS) in Technology, a manufacturer of electric circuit management and protection products rebounded with improved sentiment around the company’s end markets of automotive and industrial, where increased electrification is taking place.”
Fabrinet (NYSE:FN) offers optical packaging and precision optical, electro-mechanical, and electronic manufacturing services. A total of 24 hedge funds in Insider Monkey’s database of hedge funds had stakes in Fabrinet (NYSE:FN) as of the end of the first quarter.
In May Fabrinet (NYSE:FN) posted its fiscal Q3 results. Adjusted EPS in the quarter came in at $1.94 beating estimates by $0.07. Revenue in the period jumped 17.9% year over year to $665.28 million, surpassing estimates by $14.75 million.
FPA Queens Road Small Cap Value Fund made the following comment about Fabrinet (NYSE:FN) in its Q1 2023 investor letter:
“Fabrinet (NYSE:FN) is a contract manufacturer of optical communications sensors and equipment. The company has a niche in hard to replicate precision manufacturing technologies and an enviable track record of execution. The majority of sales go into the optical communications OEMs (original equipment manufacturing), but Fabrinet has been successfully diversifying into the industrial, auto and medical endmarkets. The stock performed well last year due to strong results but has been weaker this year as guidance has moderated and competitor Lumentum reported disappointing preliminary results.”
Electronics manufacturing service company Sanmina Corporation (NASDAQ:SANM)’s stock has gained about 6.6% year to date.
As of the end of the first quarter of 2023, 28 hedge funds tracked by Insider Monkey had stakes in Sanmina Corporation (NASDAQ:SANM). The biggest hedge fund stakeholder of Sanmina Corporation (NASDAQ:SANM) during this period was Diamond Hill Capital of Ric Dillon which owns a $42 million stake in the company.
Corning Incorporated (NYSE:GLW) sells optical materials, components, and systems that play a key role in electronic and electrical devices.
Out of the 943 hedge funds tracked by Insider Monkey, 40 hedge funds had stakes in Corning Incorporated (NYSE:GLW) as of the end of the first quarter of 2023. The most notable hedge fund stakeholder of Corning Incorporated (NYSE:GLW) was Point72 Asset Management of Steve Cohen which had a $46 million stake in the company.
Corning Incorporated (NYSE:GLW) jumped last month after Citi Research upgraded the stock to Buy from Neutral and upped its price target to $40 from $36.
