Outlook for Electronics Testing Equipment Space Looks Bright
The Zacks Electronics -Testing Equipment Industry
comprises companies offering advanced instruments, electronic
testing equipment solutions, thermal management systems, electrical
connectors, motors and various test solutions.
The industry is benefiting significantly from the emergence of
software-enabled testing instruments and devices. Notably, the
digital wave has led to increasing usage of electronic devices in
every major sector, namely consumer, automobile, industrial,
aerospace & defense, healthcare, semiconductors and
communications.
Here are the three major themes in the
industry:
- Rising utilization of precision motion control solutions and automatic test systems in motion control devices and testing products particularly in the aerospace, automation, medical and military end-markets is a major positive. Further, rapid adoption of wireless test solutions is spurring the industry’s growth. Additionally, commercial motor vehicles will continue to boost demand for vehicle tracking systems, fleet management solutions and other private fleet applications which are part of the industry’s key offerings.
- The industry is benefiting from increasing usage of electrical instruments and software in the interrogation of biological properties of molecules and cells in clinical and medical science research work. Rapid adoption of these solutions is expected to drive growth for industry participants in the healthcare end-market. Additionally, medical devices and pharmaceutical markets hold immense growth opportunities, thanks to the growing usage of electronic equipment. Moreover, strengthening demand for RF test equipment by medical device manufacturers is a tailwind.
- The rapid adoption of IoT technology and the emergence of 5G technology presents solid growth opportunities for the industry participants. Moreover, the industry is expected to remain on growth trajectory backed by strong efforts made toward the ongoing modification of the Internet infrastructure, IoT supported industrial automation and evolution of smart cars & autonomous vehicle. Further, robust demand for collaborative robots which add efficiency to the production process by working with the production workers will aid growth of the industry.
Zacks Industry Rank Indicates Bright
Prospects
The Zacks Electronics – Measuring Instruments industry is housed
within the broader Zacks Computer and Technology sector. It carries
a Zacks Industry Rank #105, which places it at the top 41% of 256
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 positive earnings outlook for the
constituent companies in aggregate.
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 Sector, Lags S&P
The Zacks Electronics – Testing Equipment Industry has outperformed
the broader Zacks Computer and Technology sector but lagged the
Zacks S&P 500 composite in the past year.
The stocks in this industry have collectively increased 2% compared
with the Zacks S&P 500’s growth of 3% and the Zacks Computer
and Technology sector’s loss of 0.5%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings ratio (P/E),
which is a commonly used multiple for valuing Electronics – Testing
Equipment stocks, the industry is currently trading at 25.32X,
higher than the S&P 500’s 17.52X and the sector’s 19.06X.
Over the past five years, the industry has traded as high as 29.49X
and as low as 16.68X, recording a median of 23.36X, as the charts
below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
Bottom Line
We believe the near-term growth prospects of this industry are
bright driven by continuous spending by manufacturers of
semiconductors, automobiles, machineries, smartphones and medical
devices.
None of the stocks in the industry carries a Zacks Rank #1 (Strong
Buy). However, we are presenting a stock with a Zacks Rank #2 (Buy)
that investors may choose to pick. You can see the complete
list of today’s Zacks #1 Rank stocks here.
AMETEK, Inc. (AME) based in Berwyn, PA is the
manufacturer of electronic appliances and electromechanical
devices. The company has recorded average positive earnings
surprise of 5.56% in the trailing four quarters.
Price and Consensus: AME
Moreover, below are two stocks with Zacks Rank #3
(Hold) from the same space that investors can retain for the time
being.
Teradyne, Inc. (TER) based in North Reading, MA is
a leading provider of automated test equipment. It also offers
specialized system testing equipment. Notably, the company has
delivered average positive earnings surprise of 16.56% in the
trailing four quarters.
Price and Consensus: TER
Cognex Corp. (CGNX) based in Natick, MA is
involved in designing, development, manufacturing and marketing of
machine vision systems. It also offers software, sensors and
industrial barcode readers that are utilized in manufacturing
automation. The company has average four-quarter positive earnings
surprise of 9.82%.
Price and Consensus: CGNX
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know
about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with
amazing regularity. In 2018, while the market dropped -5.2%, the
portfolio scored well into double-digits overall with individual
stocks rising as high as +61.5%. And from 2012-2017, while the
market boomed +126.3, Zacks' Top 10s reached an even more
sensational +181.9%.
See Latest Stocks Today >>
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free
report
Teradyne, Inc. (TER) : Free
Stock Analysis Report
Cognex Corporation (CGNX) :
Free Stock Analysis Report
AMETEK, Inc. (AME) : Free
Stock Analysis Report
To read this article on
Zacks.com click here.
Zacks Investment Research