We recently compiled a list of the 8 Best Electronic Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Fabrinet (NYSE:FN) stands against the other electronic stocks.
The Electronics Industry’s Growth Trajectory
The electronics sector is experiencing robust growth driven by several key factors. Technological advancements, particularly in consumer electronics, are a major catalyst, with innovations in smartphones, the emergence of 3G and 4G technologies, smart wearables, and smart home devices significantly boosting demand. According to Grand View Research, the global consumer electronics market is projected to experience significant growth, expanding from $1,068.22 billion in 2022 to $1,619.04 billion by 2030, with a compound annual growth rate of 6.6%.
Additionally, rising income levels, especially in emerging markets, are fueling demand, as more households can afford electronic devices. The expansion of the IoT ecosystem presents new opportunities within the sector, enhancing automation and efficiency across various applications. Advancements in semiconductor technology are crucial for this growth, powering everything from smartphones to electric vehicles. Furthermore, sustainability initiatives are becoming increasingly important, with companies exploring eco-friendly manufacturing practices and materials to meet consumer demand for greener products.
The semiconductor industry is at a pivotal moment, driven by rapid advancements in AI and the evolving dynamics of the market. With significant players recently reporting disappointing earnings and a slower-than-expected recovery in chip demand, the sentiment surrounding semiconductor stocks is one of cautious optimism. As the market grapples with these challenges, investors are keenly focused on identifying the best electronic stocks poised to thrive amid this transformative landscape.
On October 16, Dan Niles, Niles Investment Management founder & portfolio manager, joined ‘Fast Money’ on CNBC to discuss how semiconductors are a canary in the coal mine for the tech sector. In a recent discussion about the semiconductor sector and mega-cap technology, Dan Niles provided insights into ASML’s recent performance and its implications for the broader chip industry. He highlighted that the Dutch company experienced a significant miss in orders, reporting over a 50% decline compared to expectations. This drop indicates that while demand for certain products remains strong, the overall outlook for the semiconductor market is weaker than anticipated. Niles explained that if companies are ordering its equipment today, it typically means they are preparing to produce chips about a year from now. This lag suggests a slowdown in demand that could impact future revenues.
The relationship between electronic stocks and the semiconductor industry is vital and mutually reinforcing, as semiconductors serve as the backbone of modern electronic devices. The performance of semiconductor stocks directly impacts the broader electronics sector. Supply chain fluctuations can significantly affect both industries; shortages may lead to production delays and reduced revenues for electronic manufacturers, while stabilization can foster growth for both sectors.
Our Methodology
We sifted through ETFs, online rankings, and internet lists to compile a list of 15 electronic stocks with high market caps. We then selected the 8 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A frontline worker in a factory coat assembling electronic components on a production line.
Fabrinet (NYSE:FN)
Market Cap as of October 22: $8.96 billion
Number of Hedge Fund Holders: 31
Fabrinet (NYSE:FN) specializes in advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services. It designs, engineers, and produces optical components and assemblies for various industries, including communications, industrial applications, and medical devices. The company uses state-of-the-art manufacturing facilities and an experienced workforce to deliver high-quality products that meet the demanding requirements of its customers.
FQ4 2024 results exceeded expectations, with revenue up 14.85% and earnings per share at $2.41. This marked 4 consecutive quarters of record revenue and EPS figures. Datacom revenue grew over 120%, offsetting a telecom revenue decline of over 20% due to industry inventory issues. Optical communications revenue accounted for 79% of total revenue in FQ4.
The company’s revenue growth is driven by new AI products in datacom. Products rated at 800 gig and faster dominated growth, contributing 54% to optical communications revenue. Non-optical communications revenue grew 2%, primarily driven by automotive recovery.
Fabrinet (NYSE:FN) anticipates continued revenue growth in the first quarter of FY2025. It’s investing in expanding its manufacturing capacity with Building 10 in Chonburi, with construction expected to take approximately a year and a half. Capital expenditures for the project are estimated to be $110 million. The company remains optimistic about its future and is well-positioned for continued success.
FPA Queens Road Small Cap Value Fund stated the following regarding Fabrinet (NYSE:FN) in its Q2 2024 investor letter:
“Fabrinet (NYSE:FN) is a contract manufacturer of optical communications components and modules. The company has a dominant position in hard-to-replicate precision-manufacturing technologies and an enviable track record of execution. The majority of Fabrinet’s sales are to networking equipment manufacturers, but it has been successfully diversifying into the data center, industrial, auto, and medical end-markets. FN’s stock jumped after reporting June 2023 earnings – datacenter sales increased 50% sequentially and more than 100% over the previous year, driven by their 800-gigabyte transceivers for Artificial Intelligence applications. The company also announced that Nvidia is a 10%+ customer.
Fabrinet was a top-five holding in the Fund before its June 2023 earnings announcement. Since then, the stock has appreciated considerably and we have trimmed in keeping with our risk management policies. Given the growth in its forward earnings estimates, Fabrinet trades in line with its historical earnings multiples and remains a top five position for us.”
Overall, FN ranks 7th on our list of the 8 best electronic stocks to buy according to hedge funds. While we acknowledge the growth potential of FN, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
