The Zacks Electronics – Miscellaneous Products industry has been suffering from challenging macroeconomic conditions and high levels of distributor inventories. 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. Tariffs levied by the United States on trade partners, including China, are a major concern. However, players like Garmin GRMN, Mitsubishi Electric MIELY and Hayward Holdings HAYW 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 2025 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 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. 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 Acts as 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 #174, which places it in the bottom 29% 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 bearish 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 bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. Since July 31, 2024, earnings estimates for the industry for the current year have moved south by 9.4%.
Given the bearish prospects, there are only a few stocks worth buying in the industry. But before we present those stocks, let us 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 and Technology sector in the past year.
The industry has declined 48.6% during this period against the S&P 500 composite’s return of 9.5% and the broader sector’s appreciation of 5.4%.
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 8.45X compared with the S&P 500’s 20.73X and the sector’s forward-12-month P/E of 23.25X.
Over the last five years, the industry has traded as high as 20.17X and as low as 8.45X, with the median being 15.48X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Stocks to Buy Right Now
Mitsubishi Electric: This Zacks Rank #1 (Strong Buy) company’s shares have appreciated 3.8% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
Mitsubishi is benefiting from strong growth prospects in the Infrastructure, Life, and Semiconductor & Device segments. However, demand for medium- to large-sized controllers and servers will remain weak for the rest of the fiscal year.
The Zacks Consensus Estimate for Mitsubishi’s fiscal 2025 earnings has surged 11% to $2.03 per share over the past 30 days.
Price and Consensus: MIELY
Garmin: This Zacks Rank #2 (Buy) stock is benefiting from strong momentum across the Fitness and Auto OEM segments. The strength in the Fitness segment is primarily attributed to the advanced demand for wearables. 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 Garmin’s 2025 earnings has climbed 3.4% to $8.25 per share over the past 30 days. GRMN shares have dropped 10.1% year to date.
Price and Consensus: GRMN
Hayward Holdings: This Zacks Rank #2 company is benefiting from an expanding order book, driven by repeat orders from existing customers and significant new orders from both U.S. and international clients.
Hayward is benefiting from an expanding clientele thanks to an innovative portfolio. The launch of the Microchannel Temperature Control unit, an industry-first single-unit product offering the ability to both heat pool water and cool it as low as 40 degrees, is noteworthy. Omni PROAPP, a cloud-based productivity tool for trade professionals enabling real-time remote monitoring and equipment configuration expanded portfolio. HAYW expects 2025 nest sales to increase roughly 1-5%, driven by a strong portfolio.
Hayward shares have fallen 18.7% year to date. The consensus mark for HAYW’s 2025 earnings has been steady at 73 cents per share over the past 30 days.
Price and Consensus: HAYW
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