The Fed’s rate hikes led to a massive sell-off in technology stocks last year. However, the industry’s long-term prospects look promising, with rising demand for advanced technologies like metaverse and digital transformation. Investors interested in technology stocks can consider buying shares of Cisco Systems, Inc. (CSCO) and Nokia Oyj (NOK) for the long term.
The industry is growing rapidly with innovative technologies like the metaverse. The metaverse platform improves the internet experience by creating a virtual world in which users can, among other things, engage in games, conduct business, socialize, buy and sell virtual real estate, and enjoy immersive entertainment.
The global metaverse market is expected to grow at 41.6% CAGR until 2030.
Furthermore, the US technology market accounts for 35% of the global market. The U.S. tech industry is expected to grow by 5.4% in 2023.
Investors’ interest in tech stocks is evident from the iShares U.S. Technology ETF's (IYW) 17.2% returns over the past three months.
Cisco Systems, Inc. (CSCO)
CSCO designs, manufactures, and sells Internet Protocol-based networking and other products related to the communications and information technology industry. In addition, it provides infrastructure platforms, including networking technologies of switching, routing, wireless, and data center products.
On February 27, 2023, CSCO and Mercedes-Benz teamed up to develop the greatest mobile office experience in Mercedes-Benz E-Class vehicles.
CSCO’s Executive Vice President & General Manager, Security & Collaboration, Jeetu Patel, said, “The mobile office cannot progress without the reliable and secure collaboration technology that only Cisco can provide. This partnership with Mercedes-Benz, a leader in automotive luxury, marks a big step forward in delivering the flexibility that the hybrid workforce demands.”
CSCO’s forward EV/EBITDA of 9.58x is 29.3% lower than the industry average of 13.54x. Its forward EV/EBIT of 10.44x is 36.2% lower than the industry average of 16.35x.
CSCO’s trailing-12-month gross profit margin of 61.92% is 23.4% higher than the industry average of 50.17%. Its trailing-12-month EBIT margin of 26.58% is 471.6% higher than the industry average of 4.65%.
CSCO’s total revenues have increased 6.9% year-over-year to $13.59 billion for the second quarter ended January 28, 2023. Its gross margin came in at $8.43 billion, up 4.7% year-over-year. The company’s non-GAAP net income increased 2.6% year-over-year to $3.64 billion, while its adjusted EPS came in at $0.88, representing an increase of 4.8% year-over-year.
Analysts expect CSCO’s revenue to increase 9.7% year-over-year to $56.55 billion in 2023. Its EPS is estimated to increase by 11.6% year-over-year to $3.75 in 2023. It surpassed EPS estimates in all four trailing quarters. CSCO’s shares have gained 21.8% over the past six months to close the last trading session at $50.67.
CSCO’s strong fundamentals are reflected in its POWR Ratings. Its overall A rating indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CSCO has an A grade for Quality and a B grade for Stability, Sentiment, and Momentum. In the B-rated Technology – Communication/Networking industry, it is ranked #3 out of 50 stocks. For the additional POWR Ratings for Growth and Value for CSCO, click here.
Nokia Oyj (NOK)
Headquartered in Espoo, Finland, NOK provides mobile, fixed, and cloud network solutions worldwide. The company operates through four segments Mobile Networks; Network Infrastructure; Cloud and Network Services; and Nokia Technologies.
On March 7, 2023, NOK stated that Hrvatski Telekom had chosen its Converged Charging software solution to enable the Croatian operator to improve on-line charging and better harness network monetization potential that can generate new income streams.
The expansion of the collaboration with Hrvatski Telecom underlines NOK’s capacity to supply its clients with dependable and effective solutions, which should assist to boost its brand reputation and market position.
On February 27, 2023, NOK announced a contract with MTN South Africa to offer 5G Radio Access Network (RAN) equipment. Tommi Uitto, President of Mobile Networks at NOK, believes that this enhances NOK’s market position in South Africa and assists MTN in providing greater 5G experiences to its users.
In terms of forward non-GAAP P/E, NOK is trading at 9.99x, 51.7% lower than the industry average of 20.69x. Its forward EV/Sales multiple of 0.83 is 69.1% lower than the industry average of 2.70x.
NOK’s EBIT margin of 10.95% is 135.5% higher than the 4.65% industry average, while its EBITDA margin of 14.62% is 48.2% higher than the industry average of 9.87%.
NOK’s net sales came in at €7.45 billion ($7.97 billion) for the fourth quarter that ended December 31, 2022, increasing 16,1% year-over-year. Moreover, its gross profit came in at €3.19 billion ($3.41 billion), up 25.8% year-over-year.
Also, its profit rose 363.5% year-over-year to €3.15 billion ($3.37 billion), while its EPS came in at €0.56, representing an increase of 366.7% year-over-year.
NOK’s revenue is expected to increase 5.3% year-over-year to $27.54 billion in 2023. Its EPS is expected to grow 6.7% per annum for the next five years. It surpassed EPS estimates in three of four trailing quarters. NOK’s shares have gained 3.3% over the past six months to close the last trading session at $4.65.
NOK has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Value and a B for Sentiment, Growth, and Momentum. It is ranked #4 in the same industry. Click here to access the additional POWR Ratings for NOK (Stability and Quality).
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CSCO shares were trading at $50.42 per share on Wednesday afternoon, down $0.25 (-0.50%). Year-to-date, CSCO has gained 6.68%, versus a 4.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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