- Many indicators are running hot
- Shortages to persist through 2022
- Valuations are now expensive
It seems too early to be negative on the demand side of the Electronics sector, but with valuation metrics now very high, the risk/reward trade-off doesn’t look great. Many indicators are running hot and, at this point, any negative news would probably be greeted with a more outsized reaction than positive news. We are focused on stocks where growth drivers are not fully reflected in estimates or metrics. So only KCE currently rates a BUY call.
Many indicators are running hot
Demand is robust, but investors should be mindful of increasing risk factors at this stage of the cyclical upturn. We believe that strong fundamental conditions are already widely recognized and valuation metrics are expensive. In our view, stocks now look more at risk being punished by bad news than benefiting from good news. And we have concerns about peak PC growth and PMIs, as well as cracks in smartphone demand. PMIs have rebounded sharply, surpassing pre-COVID levels; the global PMI is now higher than at any point since 2011. Looking to smartphones, Apr shipments in China dived by 34% YoY (and 24% MoM), a trend reversal from growth of 68% YoY in Mar.
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