The Zacks Electronics - Semiconductors industry primarily comprises companies that provide a wide range of semiconductor technologies. Their offerings include packaging and test services, wafer cleaning, factory automation, face detection, as well as image recognition capabilities to develop smart and connected products.
The industry participants primarily cater to end markets that constitute consumer electronics, communications, computing, industrial and automotive.
Some of the prominent stocks in this industry are Advanced Micro Devices (AMD) and Broadcom (AVGO).
Here are the four major industry themes:
- Electronics aids efficiency and automation of almost any work, rendering it virtually ubiquitous in this day and age. The current scenario seems to have favored this industry that has been gaining on increased demand for electronic goods and appliances fuelled by coronavirus-induced lockdowns, quarantine, social distancing and shelter-in-place rules. Moreover, the ongoing global digital wave has been driving growth for electronic components and cloud services, thereby benefiting this industry.
- The emerging trend of computing in smart devices is a key catalyst for this industry. These devices need their own computing and learning capabilities to perform smart functions like face detection, image recognition and video analytics capabilities. Therefore, these require high levels of processing power, speed, memory and low power consumption, which are provided by the industry participants.
- Increasing adoption of AI techniques and machine learning tools in industries like gaming, automotive and blockchain is driving demand for better graphic processors as well as solutions, which bode well for the industry. These graphic solutions help in increasing the speed of rendering images, and improving image resolution and colour definition.
- Increasing demand for miniaturization, greater functionality, lower power consumption, and improved thermal and electrical performance are driving demand for semiconductor packaging and test technologies, thereby helping the participants of this industry.
Zacks Industry Rank Indicates Impressive Prospects
The Zacks Electronics - Semiconductors industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #72, which places it at the top 28% 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.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 but Lags Sector
The Zacks Electronics - Semiconductors industry has surpassed the Zacks S&P 500 composite but underperformed the broader Zacks Computer and Technology sector over the past year.
The industry has gained 18.2% over this period compared with the S&P 500’s rise of 2.1%. The broader sector has increased 20% in the said period.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing electronics semiconductors stocks, the industry is currently trading at 14.3X versus the S&P 500 and sector’s 21.54X and 24.79X, respectively.
Over the past five years, the industry has traded as high as 28.43X, as low as 5.64X and recorded a median of 11.27X, as the charts below show.
Price-to-Earnings (P/E) Ratio (F1)
Price-to-Earnings (P/E) Ratio (F1)
Growing demand for advanced electronic equipment — including high-volume consumer electronic devices such as digital media players, smartphones, tablets, efficient packaging, machine vision solutions, robotics and cost-effective process technologies — should continue to drive the industry’s growth.
Here, we present three stocks that either have a Zacks Rank #1 (Strong Buy) or 2 (Buy). These stocks are well positioned to outperform the market. You can see the complete list of today’s Zacks #1 Rank stocks here.
Silicon Motion Technology Corporation (SIMO) is a leading developer of microcontroller ICs for NAND flash storage devices. This Zacks Rank #1 stock has gained 8.1% in the past year. The Zacks Consensus Estimate for earnings per share for the current year has remained stable at $3.18 over the past 30 days.
Price and Consensus: SIMO
AXT Inc (AXTI) researches, develops, and produces compound and single element semiconductor substrates. This Zacks Rank #2 stock has gained 8.1% in the past year. The Zacks Consensus Estimate for earnings for the current year has remained stable at 3 cents per share over the past 30 days.
Price and Consensus: AXTI
FormFactor, Inc. (FORM) is an OEM of automated wafer probe cards used in the back-end portion of the semiconductor manufacturing process. This Zacks Rank #2 stock has gained 75.1% in the past year. The Zacks Consensus Estimate for earnings for the current year has increased 7.9% to $1.09 per share over the past 30 days.
Price and Consensus: FORM
Rambus, Inc. (RMBS) creates hardware and software technologies, driving advancements from the data center to the mobile edge. This Zacks Rank #2 stock has gained 19.3% in the past year. The Zacks Consensus Estimate for 2020 earnings has remained stable at 98 cents per share over the past 30 days.
Price and Consensus: RMBS
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Silicon Motion Technology Corporation (SIMO) : Free Stock Analysis Report
Rambus, Inc. (RMBS) : Free Stock Analysis Report
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AXT Inc (AXTI) : Free Stock Analysis Report
Broadcom Inc. (AVGO) : Free Stock Analysis Report
Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
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