3 Top Stocks to Buy From Prospering Electronics Industry
The Zacks Electronics - Semiconductors industry is benefiting from the solid adoption of laptops, notebooks, office equipment and network peripherals worldwide. The growing proliferation of Artificial Intelligence (AI), Generative AI, Internet of Things (IoT) and Machine Learning (ML), and industrial revolution 4.0 (which focuses on interconnectivity and automation) have turned out to be boons for industry players like Nova NVMI, Impinj PI and SkyWater Technology SKYT. The growing demand for high-volume consumer electronic devices, including digital media players, smartphones, tablets, efficient packaging, machine vision solutions and robotics, should continue to drive the industry’s growth.
However, end-market volatility, persistent inflation, broad-based inventory correction and growing geo-political tensions are concerning for the underlined industry.
Industry Description
The Zacks Electronics – Semiconductors industry comprises companies that provide a wide range of semiconductor technologies. Their offerings include packaging and test services, wafer cleaning, factory automation, face detection and image-recognition capabilities to develop smart and connected products. The industry participants primarily cater to end-markets constituting consumer electronics, communications, computing, industrial and automotive. The companies are increasing their spending on research and development to stay afloat in an era of technological advancements and changing industry standards. The underlined industry is experiencing solid demand for advanced electronic equipment, which is helping its participants increase their investments in cost-effective process technologies.
What's Shaping the Future of the Electronics - Semiconductors Industry?
5G Prospects are Key Catalysts: The growing deployment of 5G will expose industry players to near-term prospects. An uptick in the demand for 5G test solutions required for 5G deployment is another major positive. The growing number of high-speed data centers worldwide, which require ultra-fast internet that 5G promises to deliver, is another tailwind. Increased connectivity and use of technology in consumer electronics through IoT, AI, robotics, AR/VR and others further set the momentum for 5G. Given the upbeat scenario, the industry is anticipated to remain on a growth trajectory, backed by efforts to strengthen 5G infrastructure.
Smart Devices Aiding Computing Demand: Smart devices need computing and learning capabilities to perform functions like face detection, image recognition and video analytics capabilities. These require high levels of processing power, speed and memory and low power consumption, as well as better graphic processors and solutions, which bode well for the industry. Graphic solutions help increase the speed of rendering images, and improve image resolution and color definition.
Prospects Around Advanced Packaging Robust: The increasing demand for miniaturization, greater functionality, lower power consumption, and improved thermal and electrical performance are driving the demand for semiconductor packaging and test technologies. The growing requirement for advanced packaging is gaining traction in the semiconductor industry, which is a key catalyst for industry participants.
Complex Process Drives Demand: The requirement for faster, more powerful and energy-efficient semiconductors is expected to increase rapidly with the robust adoption of cloud computing, IoT and AI. Semiconductor manufacturers are primarily looking to maximize manufacturing yields at lower costs. This is making semiconductor manufacturing processes more complex and driving the demand for solutions offered by industry participants. The rapid adoption of IoT-supported factory automation solutions is another contributing factor. The increasing deployment of 5G is a key catalyst.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Electronics - Semiconductors industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #94, which places it in the top 37% 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 solid 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.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since May 31, 2024, the industry’s earnings estimates for the current year have moved 1.1% up.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 & Sector
The Zacks Electronics - Semiconductors industry has outperformed the Zacks S&P 500 composite and surpassed the broader Zacks Computer and Technology sector in the past year.
The companies in the industry have collectively gained 56.6% against the S&P 500 and the broader sector’s returns of 22.6% and 28.7%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings ratio, which is a commonly used multiple for valuing electronics semiconductors stocks, the industry is currently trading at 31.77X versus the S&P 500 and the sector’s 21.19X and 25.6X, respectively.
Over the past five years, the industry has traded as high as 35.85X, as low as 21.48X and recorded a median of 32.90X, as the charts below show.
3 Electronics Semiconductor Stocks to Buy
Nova: This Israel-based company is a provider of metrology solutions for advanced process control used in semiconductor manufacturing. It is benefiting from the growing proliferation of materials metrology and chemical metrology solutions across front- and back-end markets. The solid adoption of optical metrology solutions among multiple DRAM customers is a plus.
This Zacks Rank #1 (Strong Buy) company is experiencing several wins with memory, logic and hybrid bonding customers on the back of its PRISM standalone optical metrology platform. Additionally, strength across Nova’s VERAFLEX, XPS and XRF, ELIPSON inline Raman, and ANCOLYZER and ANCOSCENE chemical metrology solutions are positive.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock has gained 75.2% in the past year. The Zacks Consensus Estimate for NVMI’s 2024 earnings has moved 13.7% north to $6.39 per share over the last 60 days.
Price and Consensus: NVMI
SkyWater Technology: The Bloomington, MN-based company is a semiconductor manufacturer whose service model helps create the next wave of technology within diverse categories, including mixed-signal CMOS, ROICs, rad-hard ICs, MEMS, superconducting ICs, photonics and advanced packaging.
SkyWater Technology is gaining significantly from its strength in the Aerospace and Defense (A&D) business. Growing momentum across its A&D programs, driven by solid operational execution, is a major positive. Strength in the company’s Advanced Technology Services business is another positive.
SKYT’s deepening focus on next-generation medical technologies is a plus. The Zacks Rank #2 (Buy) company’s recent collaboration with Quantum-Si is expected to support the transitioning of baseline technology to Wafer Services, which, in turn, will aid in enhanced analysis of proteins.
The SKYT stock has gained 45% in the past year. The Zacks Consensus Estimate for SKYTs 2024 loss narrowed from 31 cents per share to 8 cents over the last 60 days.
Price and Consensus: SKYT
Impinj: The Seattle, WA-based company is a provider of referral and information network radio frequency identification solutions to the retail, pharmaceutical, healthcare, food and beverage, and other industries.
The Zacks Rank #2 company is benefiting from strength in the end-point IC product line, which is driving its momentum in retail apparel and general merchandise applications. Strength in Impinj’s self-checkout and loss prevention solutions is a positive. The growing penetration of RAIN products in the apparel category is a plus.
Impinj has gained 182.1% in the past year. The Zacks Consensus Estimate for PI’s 2024 earnings was unchanged at $1.93 per share over the last 30 days.
Price and Consensus: PI
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Nova Ltd. (NVMI) : Free Stock Analysis Report
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