The Fed announced its third consecutive 75-bps rate hike for 2022 in September. Moreover, Wells Fargo analysts expect another 75-bps hike in November 2022 and have projected the target rate to range between 4.75% and 5.00% in the first quarter of 2023. Against a volatile market scenario, the tech-heavy NASDAQ Composite has lost 31.4% year-to-date.
However, there still remains a robust demand for tech goods and services. According to Statista, the number of smartphone users in the United States is estimated to reach 307 million in 2022. In addition, rapid advancements in Artificial Intelligence (AI) and the Internet of Things (IoT) are estimated to drive further growth in the tech sector.
According to Emergen Research, the global AI market is projected to grow at a CAGR of 36.2% from 2020 to 2027. Furthermore, worldwide IT spending is slated to reach $4.50 trillion in 2022, up 3% year-over-year.
Given this backdrop, quality tech stocks Dropbox, Inc. (DBX) and Celestica Inc. (CLS) could be solid buys. However, the fundamentally weak stock American Virtual Cloud Technologies, Inc. (AVCT) might be best avoided.
Stocks to Buy:
Dropbox, Inc. (DBX)
DBX provides a global content collaboration platform that individuals, families, teams, and businesses can use to collaborate and sign up for free through its website or app, as well as an upgrade to a paid subscription plan for premium features.
On August 4, 2022, Co-Founder and CEO Drew Houston said, "We made great progress this quarter, enhancing performance and functionality in our core FSS product, releasing additional security and data protection capabilities, and expanding workflows, like Capture and Replay."
DBX's sales came in at $572.70 million for the second quarter that ended June 30, 2022, up 7.9% year-over-year. Moreover, the company's gross profit came in at $466.90 million, up 10.2% year-over-year. Also, its total current liabilities came in at $1.14 billion for the period that ended June 30, 2022, compared to $1.16 billion for the period that ended December 31, 2021.
DBX's revenue is expected to increase 7.4% year-over-year to $2.32 billion in 2022. It has surpassed EPS estimates in all four trailing quarters. Its EPS is expected to increase by 16.8% per annum for the next five years. DBX's shares have lost marginally intraday to close the last trading session at $20.53.
DBX's strong fundamentals are reflected in its POWR Ratings. The stock's overall B rating equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
DBX has an A grade for Quality and a B for Value. Within the Technology – Services industry, it is ranked #11 out of 80 stocks. Beyond what is stated above, we've also rated DBX for Sentiment, Growth, Momentum, and Stability. Get all DBX ratings here.
Celestica Inc. (CLS)
Headquartered in Toronto, Canada, CLS provides hardware platform and supply chain solutions in North America, Europe, and Asia. It operates through two segments: Advanced Technology Solutions and Connectivity & Cloud Solutions.
On August 2, 2022, CLS launched three new storage arrays: the Athena G2 next-generation 2U rackmount NVMe storage array, the Nebula G2 all-flash storage expansion with PCIe 4.0 NVMe SSDs, and the Titan G2 next-generation 4U dense storage array.
The products are expected to offer flexibility and bespoke options for today's most demanding applications, broadening the company's consumer base with customized solutions.
CLS' revenues came in at $1.72 billion for the second quarter that ended June 30, 2022, up 17.3% year-over-year. Moreover, the company's net earnings came in at $35.60 million, up 35.4% year-over-year. Also, its EPS came in at $0.29, up 38.1% year-over-year.
CLS' revenue is expected to increase 12.4% year-over-year to $6.34 billion in 2022. Its EPS is expected to increase 21.7% year-over-year to $1.40 in 2022. It surpassed EPS estimates in all four trailing quarters. CLS' shares have lost 2.2% intraday to close the last trading session at $8.47.
CLS' overall A rating equates to a Strong Buy in our POWR Rating system. It has an A grade for Value and a B for Growth and Sentiment. The stock is ranked first in the same industry. We've also rated CLS for Stability, Quality, and Momentum. Get all CLS ratings here.
Stock to Avoid:
American Virtual Cloud Technologies, Inc. (AVCT)
AVCT is a pure-play cloud communications and collaboration company providing cloud-based enterprise services worldwide. The company's Kandy cloud communications platform is a cloud-based, real-time communications platform.
On September 29, 2022, AVCT announced its intention to implement a 1-for-15 reverse stock split of its issued and outstanding shares of common stock. The company's common stock is expected to begin trading on a split-adjusted basis when the market opens on October 3, 2022.
AVCT's total revenue came in at $3.72 million for the second quarter that ended June 30, 2022, down 24.8% year-over-year. The company's loss from continuing operations came in at $24.01 million, up 105.6% year-over-year. Its loss per share came in at $0.08, up 89.7% year-over-year.
AVCT's revenue is expected to decrease 11.5% year-over-year to $103.59 million in 2022. Over the past year, the stock has lost 89.5% to close the last trading session at $0.30.
AVCT has an overall D rating, equating to Sell in our POWR Ratings system. It has an F grade for Quality and a D for Growth, Stability, and Sentiment. It is ranked #73 in the same industry. We have also rated AVCT for Value and Momentum. Get all AVCT ratings here.
DBX shares were trading at $21.04 per share on Friday afternoon, up $0.51 (+2.48%). Year-to-date, DBX has declined -14.26%, versus a -22.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
2 Tech Stocks to Buy and 1 to Avoid Heading Into Q4 StockNews.com
