Small-cap electronics drawing market power

November 21, 2017 02:11 PM

The  Electronics–Miscellaneous Components sector is a largely small cap industry. It holds 35 companies. This large number of firms makes the niche a lively, diverse and complex environment.

To better understand products in it, electrical engineers classify components as active, passive or electromechanical.

Active components rely on a source of energy and usually inject power into a circuit. A battery is a one example. Semiconductors are the largest group of active components. Displays are included here with LED and LCD. This group also includes amplifying components like transistors.

Passive components can’t supply energy. Resistors and capacitors and antennas fall under this category.

Electromechanical components carry out electrical operations. They use moving parts. Think of power cords and switches.

There is plenty more to explore. Learn by clicking through a number of business descriptions on It is a hot stock space. The industry currently has five #1 ranked (STRONG BUY) stocks and nine #2 ranked (BUY) stocks.  Those 14 stocks are the place to focus your attention.

Rewards are materializing for shareholders as well. The year-to-date return of the S&P 500 stands at +12.4%, while the Electronics Components industry has returned +26.3%. Why that outperformance? As semiconductor chipmakers and downstream electronics businesses grow volume smartly, so do suppliers of components to them.

The current Zacks Industry rank is #28 out of 265 (top 11%) in late September, having risen from #35 a week earlier. A top industry score, particularly on an industry with this many firms, is a solid niche to mine for great stocks.

As the market approaches the third quarter earnings season, estimate revisions have been rising across the board. In this time, 10 covering analysts raised estimates on companies; only one lowered them.

Also, there seems to be a nascent trading rotation into small cap stocks. These indexes haven’t been the place to be for some time. That may be changing.

As this small cap momentum trend gets further underway, it would be wise to play names with top Value scores and Zacks Rankings (see “Best in class”).

Three top Electronics Component stocks are IEC Electronics (IEC), Kemet Corp. (KEM) and Stoneridge Inc. (SRI).

About the Author

John Blank, Zacks Research