Johnson Controls (JCI 1.50%) and ON Semiconductor (ON 2.46%) don't have much in common. One provides heating, ventilation, air conditioning (HVAC), and building control systems. The other is a power and sensing technology company. But both are setting up to have strong years. As such, they are attractive stocks to buy now. Here's the lowdown. 

Johnson Controls benefits from investment in net zero 

The building solutions business is showing good earnings momentum in its fiscal 2023. The company has upgraded its full-year earnings expectations twice already. Having started the fiscal year forecasting organic revenue growth in the high-single digits to low-double digits and adjusted EPS of $3.20-$3.60, management now expects organic revenue growth of 10% and adjusted EPS of $3.50-$3.60. 

As such, its near-term earnings momentum is good, but the company is also gaining traction on its long-term objectives as well. Management sees a long-term growth opportunity in helping building owners meet their net-zero carbon emissions goals by upgrading HVAC systems and building controls. All of that will be driven by the increasing adoption of digitally connected devices through its OpenBlue suite of AI-powered service solutions, which help create smart buildings. 

Clearly the strategy is working, because the company's building solutions field orders growth reaccelerated to 8% in the second quarter from just 5% growth in the first quarter, with service orders up a whopping 14%.

CEO George Oliver attributed the strong performance to "transforming the company with digital, going back and making sure that all of our installed base is connected, [and ultimately using] the data to...enhance the traditional services that we perform" and "add on additional value propositions with energy and space utilization."

Connected buildings.

Image source: Getty Images.

The commitment among large corporations toward net zero is real and a cornerstone of many of their ESG efforts, so Johnson Controls will likely see strong end demand for many years to come. In addition, the productivity enhancements generated by using smart technology to improve building efficiency could generate significant cost savings for building owners. 

It all adds up to a robust set of secular revenue drivers that should lead to long-term growth for the company.

ON Semiconductor is well-placed in the modern economy

Investors may know the company better by its trading name, onsemi. Whichever way you call the company, it represents a fascinating investment conundrum. Everybody knows the semiconductor market is highly cyclical, and just when you begin to think it's going to the Moon is often when the cycle is just about to turn, making chip prices crash. On the other hand, just when it appears that things can't get worse is often when it's a good idea to buy in, as end demand could be about to pick up. 

That's part of the story with this company right now. Management classifies its end markets in three buckets and sees its future in the first two, namely automotive (40.4% of 2022 revenue), industrial (27.5%), and "other" (32.1%), which includes industries like computing, routers, consumer electronics, smartphones, etc. Digging into the first-quarter numbers, "other" sales were down 39.3% as consumer spending on electronics slowed significantly. On the other hand, automotive and industrial sales combined increased 22.6%.

Moreover, its automotive and industrial sales have powerful underlying drivers behind them, including investments in electric vehicles, advanced driver assistance systems, EV charging, industrial automation, robotics, smart vision, and smart buildings.

Management is targeting a compound annual growth rate (CAGR) of 15% in its intelligent power solutions between 2021-2025, while its intelligent sensing solutions are growing at a 13% CAGR over the same timeframe. That growth should offset the 6% CAGR decline in "other" sales over the period, leading to a top-line CAGR of 7%-9%.

An electric vehicle being charged.

Image source: Getty Images.

Given the willingness of automotive original equipment manufacturers to jump forward to EV investment while cutting ICE production plans, the increase in content per vehicle for onsemi could offset volume weakness in automotive production. Meanwhile, industrial automation companies will likely continue to upgrade their outlooks through 2023. 

All of this speaks well of the potential for ON Semiconductor to continue growing even as the overall semiconductor market slows.