Despite economic challenges, the tech industry is thriving. Broad technology adoption, increased digitization investments, and emerging technologies drive demand for advanced solutions, positioning the industry for growth.
Amid this backdrop, it could be wise to buy fundamentally strong tech stocks, Vishay Intertechnology, Inc. (VSH), Brother Industries, Ltd. (BRTHY), and Eltek Ltd. (ELTK).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the tech industry is well-positioned to grow.
In the era of rapid technological advancements, electronics and modern technology have become integral in shaping industries and societies. The technology sector's digital revolution, encompassing smart devices and advanced computers, firmly establishes it as a dominant force in the global economy.
Advancements in electronic technology fuel a constant demand for newer, faster electrical and electronic goods. Gartner predicts substantial growth in tech spending with a forecasted 8.8% rise to $5.14 trillion in IT expenditure in 2024. Additionally, device spending is projected to increase by 6.9% to reach $748.15 billion next year.
Moreover, the growing use of cloud-based software is greatly benefiting the sector by enabling significant investment in technology and management services. This is also expected to lead to improved operations, customer relationships, and enhances transparency, governance, and business agility.
Notably, according to a report by Contrive Datum Insights, the electronics industry is projected to achieve a 7.5% CAGR and reach $4.99 trillion by 2030.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Technology - Electronics picks, beginning with the third choice.
Stock #3: Vishay Intertechnology, Inc. (VSH)
VSH manufactures and sells discrete semiconductors and passive electronic components in Asia, Europe, and the Americas. It operates in six segments: Metal Oxide Semiconductor Field Effect Transistors (MOSFETs), Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors.
On September 13, 2023, VSH announced the release of new 6 A, 20 A, and 25 A microBRICK synchronous buck regulator modules. These modules are designed to deliver increased power density and efficiency for point of load (POL) converters.
On September 7, 2023, VSH announced a new manufacturing facility in Gómez Palacio, Durango, Mexico, dedicated to mass-producing power inductors. This facility, named Vishay La Laguna S. de R.L. de C.V., will boost VSH’s power inductor manufacturing capacity. Commercial production is expected to commence by the end of 2023, with the production of Automotive Grade power inductors set for 2024.
Mike Husman, Senior Vice President at VSH said, “Our La Laguna facility serves a number of strategic and logistical goals for Vishay and our power inductor customers in the United States and Europe, many of whom have established manufacturing facilities of their own in Mexico. La Laguna will give us plenty of room to grow and to help us achieve our plan to double our global inductor capacity.”
In terms of the trailing-12-month net income margin, VSH’s 11.84% is 482.4% higher than the 2.03% industry average. Likewise, its 17% trailing-12-month EBIT margin is 246.2% higher than the industry average of 4.91%. Furthermore, the stock’s 20.73% trailing-12-month Return on Common Equity is significantly higher than the industry average of 1.16%.
VSH’s net revenues for the six months that ended July 1, 2023, increased 2.7% year-over-year to $1.76 billion. Its gross profit increased 3% year-over-year to $536.19 million. The company’s operating income came in at $293.18 million.
For the same quarter, its adjusted net earnings and adjusted EPS came in at $206.82 million and $1.47 respectively. Also, its cash inflow from operating activities rose 118.9% year-over-year to $237.13 million.
Street expects VSH’s revenue for the fiscal year ending December 31, 2023, to increase 0.2% year-over-year to $3.51 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 11.9% to close the last trading session at $22.86.
VSH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and a B for Momentum. Within the Technology - Electronics industry, it is ranked #8 out of 43 stocks. To see VSH’s Growth, Stability, Sentiment, and Quality ratings, click here.
Stock #2: Brother Industries, Ltd. (BRTHY)
Headquartered in Nagoya, Japan, BRTHY manufactures and sells communications and printing equipment in Japan, the Americas, Europe, Asia, Oceania, the Middle East, Africa, and internationally. It operates through Printing & Solutions, Machinery, Domino, Nissei, Personal & Home, and Network & Contents segments.
On May 22, 2023, BRTHY announced the establishment of its second Technology Center in Gurugram, Haryana, India. The center will serve as a hub for showcasing machine tools, hosting seminars, and offering service support for northern India, primarily in the automobile and motorcycle parts industry, due to the growing Indian economy.
The facility currently displays two models of the SPEEDIO series, with plans to expand the showcase to five models by the end of August. This complements BRTHY’s ongoing efforts to strengthen its presence and support for machine tools in India.
In terms of the trailing-12-month Capex/Sales, BRTHY’s 3.88% is 60.8% higher than the 2.41% industry average. Likewise, its 4.65% trailing-12-month net income margin is 128.6% higher than the 2.03% industry average. Additionally, its 6.13% trailing-12-month Return on Common Equity is 430.2% higher than the 1.16% industry average.
BRTHY’s revenue the fiscal 2024 first quarter that ended June 30, 2023, increased marginally year-over-year to ¥200.41 billion ($1.34 billion). Its gross profit rose 4.5% year-over-year to ¥87.91 billion ($587.05 million). The company’s comprehensive income increased 12% from the prior year quarter to ¥54.37 billion ($363.07 million).
In addition, its profit for the period and earnings per share came in at ¥16.25 billion ($108.52 million) and ¥63.38, respectively.
Analysts expect BRTHY’s revenue for the fiscal year ending March 31, 2024, to increase 60% year-over-year to $5.48 billion. Over the past six months, the stock has gained 4.6% to close the last trading session at $30.88.
It’s no surprise that BRTHY has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value, Stability and Quality. Within the same industry, it is ranked #5. In total, we rate BRTHY on eight different levels. Beyond what we stated above, we also have given BRTHY grades for Growth, Momentum, and Sentiment. Get all the BRTHY ratings here.
Stock #1: Eltek Ltd. (ELTK)
Headquartered in Petach Tikva, Israel, ELTK manufactures, markets, and sells printed circuit boards (PCBs) in Israel, Europe, North America, India, the Netherlands, and internationally. It offers a range of custom designed PCBs, including rigid, double-sided, and multi-layer PCBs, and flexible circuitry boards.
In terms of the trailing-12-month Return on Common Equity, ELKT’s 21.52% is significantly higher than the 1.16% industry average. Its 11.44% trailing-12-month EBIT margin is 133% higher than the industry average of 4.91%. Likewise, its 1.06x trailing-12-month asset turnover ratio is 72.1% higher than the industry average of 0.62x.
For the second quarter that ended June 30, ELTK’s revenues increased 21.5% year-over-year to $11.04 million. The company’s net income and EPS rose 74.4% and 69.2% year-over-year to $1.31 million and $0.22, respectively. Furthermore, its non-GAAP EBITDA rose 114.3% year-over-year to $1.70 million.
For the fiscal year ending December 31, 2023, BRTHY’s EPS is expected to increase 95.5% year-over-year to $1.08. Its revenue for the fiscal year ending December 31, 2024, is expected to increase 10% year-over-year to $51.31 million. Over the past year, the stock has gained 171.8% to close the last trading session at $9.81.
ELKT’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and Quality and a B for Growth and Momentum. It is ranked first in the Technology – Electronics industry. To see ELKT’s Value and Stability ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
BRTHY shares were trading at $30.88 per share on Wednesday morning, down $0.15 (-0.48%). Year-to-date, BRTHY has gained 4.86%, versus a 11.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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