Don't Overlook This Fast-Growth Industry

David Silver: The fast-growing electronic materials industry is an under-researched sector enjoying fast growth, record profitability, and secular tailwinds.

The sector provides the gas mixtures, chemical formulations, specialty materials, equipment, and packaging that facilitate the production of leading-edge semiconductors and other microelectronics underlying the proliferation of mobile devices, laptops, cloud computing, and the "Internet of Things."

Sturdy economic moats are built on both the patented and proprietary products they create, as well as their long history of successful collaboration with the world's largest chipmakers and semiconductor equipment manufacturers. One caveat: They serve a powerful, concentrated customer base, which limits their pricing power and operating flexibility.

Among the handful of well-run stocks in the group are mid-caps Entegris and Versum Materials. We slightly prefer Entegris here due to greater product breadth and more experienced management. 

For investors who prefer large caps, there will soon be an interesting new investing option: DowDuPont is planning to de-merge into three separate companies by March 2019. One spin-off will hold the combined electronics and electronic materials businesses of both companies. This new company will become both the world's largest electronics materials supplier.