While investors have enjoyed the January rally in equities markets, uncertainty remains over increased interest rates, sky-high inflation, and background volatility in the broader macro-economic environment. As analysts continue to warn of a looming recession, industrials present a safer bet for more risk-averse investors while still promising significant upside. Laser technology and its diverse application to a range of industries from automotive to defense and manufacturing is one such niche that is looking increasingly attractive moving into Q1 2023.
In a recent industry research report, McKinsey & Company analysis of the global photonics market predicts a 10% CAGR for laser technology through 2025 with a TAM of $15B compared to the 2021 market value of $10.3B. The report further cites numerous mega-trends such as the rise in digital manufacturing and robust growth in remote vision technology that will play a central role in guaranteeing forward demand for laser technology and associated stocks over the years to come.
For investors looking to benefit from the disruptive potential currently behind this market, here are three laser stocks that have significantly outperformed the Dow Jones Industrial average by double- and even triple-digit margins over January 2023:
1. Laser Photonics
Laser Photonics Corp Unit (NASDAQ:LASE) provides integrated laser-blasting solutions to a range of high-profile clients ranging from the US Navy to Fortune 500 companies. As legacy methods such as sand-blasting for cleaning and conditioning surfaces are abandoned due to inefficiency and safety concerns, LASE has cornered the emerging market for laser-blasting cleaning. Laser Photonics was only listed on NASDAQ at the start of Q4 2022, yet its positive operating margin, EPS, and EBITDA render LASE an attractive investment from a fundamental perspective.
After a post-IPO slump, LASE share price has come roaring back since a two million share buyback was announced by management on January 11th. In the time since, the company has announced an upgrade to its product line as well as the introduction of IoT solutions for next-generation laser customers. This momentum has helped generate a >200% increase in share price YTD, singling out LASE as a top NASDAQ gainer in 2023.
2. IPG Photonics
IPG Photonics Corporation (NASDAQ:IPGP) develops and manufactures a wide range of laser products for materials processing across the globe. Despite nearly 40% losses in 2022, Zacks has maintained its EPS forecast of $4.64 and a HOLD rating for IPGP on the basis of strong demand for its core product line. IPGP beat its Q3 ‘22 earnings forecasts by a significant margin for a positive EPS of $1.47 compared to a predicted $1.15, with Q4 earnings expected to be reported next week.
In January IPG Photonics launched two new products targeting new markets as well as a change to its board of directors, all of which were received positively by the market. Posting gains of 20% YTD, IPGP share price is riding a wave of bullish momentum that is rapidly making up for the previous years losses while singling out IPGP as a leading pick in the laser technology market.
3. Lumentum Holdings
Lumentum Holdings Inc (NASDAQ:LITE) specializes in the production of optical and photonic products that can be broken into two main segments, namely optical communications and commercial lasers. In January LITE enjoyed a wave of positive publicity, from its nomination as one of America's Most Responsible Companies to a growing consensus that it is poised to beat its Q4 earnings forecast again, both of which helped produce a 17% jump in share price YTD.
A glance at LITE’s balance sheet attests to solid fundamentals that feature $420M EBITDA, $1.62B cash on hand, and 6.6% ad 13.5% profit and operating margins, respectively. In other words, LITE is a veritable golden goose with strong future prospects. Analyst price target has settled on an average of $73.03 for LITE share price, up from $61.94 at close on Friday, i.e. representative of 15% upside for longer-term investors.
Conclusion
Beyond their allure as an emerging technology of the future, laser solution developers and manufacturers are aggressively attracting investment inflows. As equity investors brace for a potential pullback after January’s bull run, laser stocks offer the reliability of traditional industrials paired with the promise of emerging technology for an attractive Q1 2023 opportunity.