Look Into These Electronics Companies' Growth Businesses
Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Some of my favorite stocks in the electrical equipment/electronics industry are those of firms that aim to invest resources in growth markets and profit from market trends. These are companies that might have more substantial R&D budgets than the average sector participant, allowing them to alleviate the impact of cyclical downturns while supporting profit gains. The stocks tend to be good long-term holdings, despite the likelihood of increasing demand over time.
New avenues of growth in display glass
Corning (NYSE: GLW) has performed well behind the strength of its liquid-crystal-display (LCD), primarily used in televisions and notebook computers. The company is currently benefiting from increasing demand in Asia, as the television industry there continues to transition to newer material and larger display sizes. Corning's subsidiary, Samsung Corning Precision, is well-situated in this business and is a major contributor to the bottom line.
More importantly, perhaps, in terms of growth prospects beyond the next several years, Corning's Specialty Materials segment produces a "Gorilla Glass," utilized in small-form factor displays, i.e. smartphones. The profit margins on this operation should expand over several years, while Corning continues to seek out further applications for the material. On that note, the company is consistently developing products within its other divisions. Specifically, its Environmental Technologies unit is developing new diesel engine filter-related products for the purposes of meeting tightened emissions regulations in the U.S. and Europe. Plus, its Telecommunications division is also investing in data center and wireless focused products.
Corning is currently experiencing flat year-over-year volumes in its LCD glass business, a factor that may deter earnings from substantially exceeding last year's $1.29 mark. Its shares are trading at only about 10.7 times forward earnings, adding to their appeal. My belief is that Corning will remain at the forefront of the display glass market, allowing the company to continue to realize sales gains and strong margins in those businesses.
Automotive audio and navigation products
In early 2014, Harman International (NYSE: HAR) will launch in Mercedes Benz vehicles a navigational system with advanced high-definition-display (HDD) and 3D capabilities. The system, the NTG5, will also incorporate wireless and speech-recognition features. Its newest products combine interactive headset displays and smart navigation technologies. Through these developments, it is providing a glimpse of the future in automotive audio and positioning systems.
In the meantime, Harman continues to expand on long-term agreements with auto manufacturers. Its two largest clients are BMW and Audi/Volkswagen, and the company is making strides among Japanese and Chinese producers. Its more moderately-sized consumer-related unit is also reliant on product development, such as new wireless speakers and those for the mobile audio market, as it partners with telecom service providers like Sprint, Verizon, and AT&T.
For the current fiscal year, Harman is up against a challenging environment due to struggles among the European automakers. Still, it is likely to benefit from restructuring measures, and earnings growth should accelerate. It likely earned just over $3.00 per share in the year ended June 2013.
Harman is a leader in its core business and would benefit from growth at its auto OEM partners, as well as new auto clients. The shares are a good long-term holding for investors willing to endure volatility.
Bringing GPS systems to additional industries
Trimble Navigation (NASDAQ: TRMB) is paving the way for companies across engineering, construction, agricultural, mobile, and other economic sectors to adopt navigation technologies. Recent acquisitions are cementing its positions in these end markets, and it is winning business with the likes of unmanned aircraft and high-speed rail companies. Trimble has been spending around 13% of sales on R&D and ought to benefit from its efforts over the long term as its product lines remain cutting edge.
Trimble is, essentially, a growth company and is on track for share profits to grow 10%-15% in 2013, up from $1.33 in 2012. Shares are down from their 52-week high, but they have upside potential for the near term. Plus, given Trimble's potential for product line expansion and company buyouts, I like the shares for their appreciation potential as a "buy and hold."
Reviewing several electrical equipment companies' research and development strategies, an eye on wireless and navigational applications that might be required down the road seems to be the highlight. Investors may reap gains from these companies' expansions of their solid core businesses through innovation. At this juncture, I recommend all, with Trimble ranked first, followed by Corning and Harman.
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Damon Churchwell has no position in any stocks mentioned. The Motley Fool recommends Corning. The Motley Fool owns shares of Corning. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!