The Zacks Electronics – Miscellaneous Products industry has been suffering from challenging macroeconomic conditions, high levels of distributor inventories and steep interest rates. 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. However, players like Garmin, Greenland Technologies and Kopin 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. Notably, 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 #160, which places it in the bottom 36% 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 Jul. 31, 2024, earnings estimates for the industry for the current year have moved south by 11.4%.
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 29% during this period against the S&P 500 composite’s return of 23% and the broader sector’s appreciation of 30.4%.
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 13.11X compared with the S&P 500’s 21.78X and the sector’s forward-12-month P/E of 26.62X.
Over the last five years, the industry has traded as high as 22.49X and as low as 10.92X, with the median being 16.52X.
Stocks to Buy Right Now
Garmin: This Zacks Rank #1 (Strong Buy) stock is benefiting from strong momentum across the Fitness and Auto OEM segments. You can see the complete list of today’s Zacks #1 Rank stocks here.
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 2025 has been unchanged at $7.66 per share over the past 30 days. GRMN shares have jumped 68.9% in a year.
Greenland: This Zacks Rank #2 (Buy) company’s shares have lost 43.7% in a year.
GTEC is benefiting from the launch of model H65L, its all-electric vehicle. Strong demand for electric vehicles bodes well for the company’s prospects.
The Zacks Consensus Estimate Greenland’s 2025 earnings has been unchanged at 46 cents per share over the past 30 days.
Kopin: 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.
A strong portfolio with the launch of the next-generation SXGA FLCoS microdisplay system called the R-15 is a noteworthy development.
Kopin shares have fallen 45.6% in a year. The consensus mark for KOPN’s 2025 loss has been at 5 cents per share over the past 30 days.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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