2 Electronics Testing Stocks to Watch From a Challenging Industry

Industry Overview - The Zacks Electronics – Testing Equipment industry is facing challenges due to a difficult global macroeconomic environment, end-market volatility, unfavorable foreign exchange rates, and increasing geopolitical tensions [1] - The automotive sector is sluggish, primarily due to declining investments in electric vehicles, which is a significant headwind for industry participants [1] - The factory automation market remains weak, and conservative capital expenditure trends in consumer electronics are also a concern [1] Growth Opportunities - Companies like Cognex (CGNX) and Itron (ITRI) are capitalizing on growth opportunities related to 5G, automation, and Industry 4.0 [1] - The adoption of software-enabled testing instruments and devices is increasing, providing a positive outlook for the industry [1] - The rising utilization of precision motion-control solutions and automatic test systems in various markets, including aerospace and medical, is a positive trend [3] Pharmaceutical Market - The industry is benefiting from the increasing use of electrical instruments and software in clinical and medical science research, particularly in the pharmaceutical market [4] - Agilent is gaining traction in life science research, driven by the growing utilization of electronic testing equipment [4] - There is a rising demand for RF test equipment from medical device manufacturers, contributing to industry growth [4] 5G Deployment - The deployment of 5G technology presents near-term growth prospects for industry players [5] - There is an uptick in demand for 5G test solutions, which is essential for 5G deployment [5] - The trend of migrating infrastructure workloads to the cloud is boosting demand for high-speed Internet services, benefiting electronic companies associated with 5G [5] Macroeconomic Challenges - The challenging macroeconomic environment is causing enterprises to hesitate in signing multi-year deals, which negatively impacts industry participants [6] Industry Performance - The Zacks Electronics – Testing Equipment industry currently holds a Zacks Industry Rank of 201, placing it in the bottom 19% of over 250 Zacks industries [7] - The industry has underperformed the S&P 500 and its sector over the past year, declining by 0.8% compared to the S&P 500's increase of 18.4% [11] - The industry's forward 12-month price-to-earnings (P/E) ratio is 23.59X, higher than the S&P 500's 22.1X but lower than the sector's 25.78X [12] Company Highlights - Itron is benefiting from trends in electrification, gas safety, energy transition, and water efficiency, with increasing demand for smart water meters and electric solutions [14] - Cognex is focusing on integrating Artificial Intelligence (AI) into its machine vision products, launching innovative products like the AI-enabled 3D smart camera [18] - Itron's shares have declined 6.3% year-to-date, with a consensus estimate for 2025 earnings revised downward to $4.84 per share, indicating a year-over-year decline of 13.88% [16] - Cognex's shares have declined 8.5% year-to-date, with a consensus estimate for 2025 earnings revised downward to 88 cents per share, indicating year-over-year growth of 18.92% [19]