Zacks Industry Outlook Highlights Carrier Global, SES AI and Bel Fuse

Investing

Published: August 31, 2023 10:32 pm

Chicago, IL – August 31, 2023 – Today, Zacks Equity Research discusses Carrier Global CARR, SES AI SES and Bel Fuse BELFB.

Industry: Electronics

Link: https://www.zacks.com/commentary/2142360/3-electronics-stocks-to-buy-from-a-prospering-industry

The Zacks Electronics – Miscellaneous Products industry participants like Carrier Global, SES AI and Bel Fuse are benefiting from higher spending on advanced technologies, including augmented reality (AR) and virtual reality (VR). Continuing investments in data center, 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 2023 and beyond.

Easing supply-chain constraints also benefit industry participants. However, challenging macroeconomic conditions, unfavorable forex and higher inflation are headwinds. The global economic turmoil is expected to keep semiconductor capex under check, which does not bode well for industry participants in the near term.

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 capital expenditure by semiconductor companies is expected to be strong in the long run (irrespective of the near-term hiccups due to the challenging macroeconomic conditions), driven by investments in infrastructure, as well as expanding capacity.

Since semiconductor companies are the 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 the 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 Conditions are Headwinds: Industry participants are suffering from a challenging macroeconomic condition globally with enterprises showing reluctance in committing towards multi-year deals. Raging 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 #105, which places it in the top 43% 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 bullish 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 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 Mar 31, 2023, the industry’s earnings estimates for the current year have moved up 2.2%.

Given the bullish prospects, there are a number of stocks worth watching in the industry. But before we present a few of those stocks, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Beats S&P 500, Lags Sector

The Zacks Electronics – Miscellaneous Products industry has outperformed the S&P 500 Index but lagged the Computer & Technology sector in the past year.

The industry has returned 18.7% during this period compared with the S&P 500 composite’s growth of 12.1% and the broader sector’s return of 21.1%.

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 18.68X compared with the S&P 500’s 19.4X and the sector’s forward-12-month P/E of 24.31X.

Over the last five years, the industry traded as high as 20.07X and as low as 10.21X, with the median being 15.51X.

Stocks to Buy Right Now

Carrier Global: This Palm Beach Gardens, FL-based company is a provider of advanced heating, ventilation, refrigeration, air conditioning, fire, security and building automation technologies.

Carrier Global is benefiting from solid momentum across its Heating, Ventilating and Air Conditioning (“HVAC”) segment. Normalizing supply chains are expected to benefit prospects. The company expects adjusted operating margin to expand, driven by higher organic sales and better performance at Toshiba Carrier.

CARR shares have gained 37.6% year to date. The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s 2023 earnings has increased a couple of cents to $2.62 per share over the past 30 days.

SES AI: This Zacks Rank #2 company is a well-known developer and producer of high-performance, lithium metal rechargeable battery technologies for electric vehicles (EVs), electric vehicle take-off and landing and other applications.

The Woburn, MA-based company’s strong focus on continued innovation through transition to B-sample for EVs is noteworthy. In 2023, SES expects to produce roughly 1,000 100-mPOWER lithium metal cells per month per line compared with about 1,000 total 100-mPOWER lithium metal cells in 2022.

The consensus mark for 2023 loss has narrowed by a couple of cents to 24 cents per share over the past 30 days. SES shares have declined 28.6% year to date.

Bel Fuse: This Zacks Rank #2 company designs and manufactures products that power, protect and connect electronic circuits.

Bel Fuse has been benefiting from a diversified portfolio that caters to a broad array of end markets. This New Jersey-based company’s Connectivity Solutions business is benefiting from strong demand across commercial aerospace and defense end markets.

BELFB shares have gained 57% year to date. The Zacks Consensus Estimate for Bel Fuse’s 2023 earnings has jumped 39% to $5.56 per share over the past 30 days.
Bel Fuse Inc. (BELFB): Free Stock Analysis Report

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