The technology sector has experienced a significant rebound in the first two quarters of 2023. However, another one of the Fed’s rate hikes could cloud the tech sector’s growth prospects.
In this scenario, investors could look to follow where institutions are investing their money in. Fundamentally strong stocks, Apple Inc. (AAPL), Panasonic Holdings Corporation (PCRFY), and TransAct Technologies Incorporated (TACT), are attracting the attention of smart money, which could make them solid watchlist additions now.
The tech landscape is experiencing a boom as digital technologies gain widespread adoption. With rapid digitization and the emergence of cutting-edge technologies, the demand for specialized hardware solutions is set to soar. The computer hardware market is expected to grow at a CAGR of 6.6% to reach $909.80 billion in 2027.
While it has opened up numerous opportunities for industries to enhance their operations and offerings, the rapid growth of the Internet of Things (IoT), robotics, Machine Learning (ML), and blockchain has created a demand for specialized expertise from IT service providers.
As a result, revenue in the IT service market is expected to grow at a CAGR of 6.3%, resulting in a market volume of $561 billion by 2027.
Given this backdrop, it could be wise to follow in the footsteps of smart money and invest in AAPL, PCRFY, and TACT. Let’s take a closer look at the featured stocks in detail:
Apple Inc. (AAPL)
Tech giant AAPL designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories and sells various related services. Its product offerings include iPhone, Mac, AirPods Max, iPad, Apple TV, Apple Watch, HomePod, and accessories. Institutions own 59.9% shares of AAPL.
On August 1, the company, together with Pixar, Adobe Inc. (ADBE), Autodesk, Inc. (ADSK), NVIDIA Corporation (NVDA), and the Joint Development Foundation (JDF), announced the Alliance for OpenUSD (AOUSD) to promote the standardization, development, evolution, and growth of Pixar’s Universal Scene Description technology.
By promoting greater 3D tools and data interoperability, the alliance will enable developers and content creators to describe, compose, and simulate large-scale 3D projects and build an ever-widening range of 3D-enabled products and services.
On June 21, AAPL launched the visionOS software development kit to enable its developer community to bring more smoothness to its app user experience. This new feature would allow users to interact with digital content in their physical space using natural and intuitive inputs.
Further, it enables users to utilize the kit’s powerful and unique capabilities to improve their productivity, design, and gaming experience.
In the same month, the company unveiled Apple Vision Pro, a revolutionary spatial computer that actively integrates digital content with the physical world, propelling innovation to unprecedented levels. The device features an ultra-high-resolution display system, the efficiency of which should help attract a robust demand from new and existing customers.
Moreover, the company has made further strides in expanding its product lineup by launching a bigger MacBook Air laptop alongside high-end desktops tailored for 3D designers and programmers. The company also revealed major iPhone, iPad, and Apple Watch operating systems updates.
On August 3, the company declared a dividend of $0.24 per share of its common stock, payable to its shareholders on August 17, 2023. AAPL pays an annual dividend of $0.96, which translates to a dividend yield of 0.54%.
Its four-year average yield is 0.72%. The company’s dividend payouts have grown at CAGRs of 5.7% and 6.7% over the past three and five years, respectively. Also, it has a record of nine years of consecutive dividend growth.
For the third quarter of fiscal 2023, which ended July 1, 2023, AAPL’s total net sales amounted to $81.79 billion, while its gross margin rose 1.5% from the year-ago value to $36.41 billion. AAPL’s net income and EPS amounted to $19.88 billion and $1.26, representing increases of 2.3% and 5%, respectively, from the prior year’s quarter.
Also, the company’s cash and cash equivalents came in at $28.41 billion, up 20.1% versus $23.65 billion as of September 24, 2022.
Street expects AAPL’s EPS to increase 7.7% year-over-year in the current quarter (ending September 2023) to $1.39, while its revenue is expected to be $89.30 billion in the same period. Moreover, it surpassed the EPS estimates in three of the trailing four quarters, which is impressive.
AAPL’s revenue and EBITDA have increased at CAGRs of 11.9% and 16.4% over the past three years, respectively, while its EPS has improved at a CAGR of 21.8% in the same period.
The stock’s trailing-12-month net income margin of 24.68% is substantially higher than the 2.01% industry average. Likewise, its trailing-12-month ROCE and ROTC of 160.09% and 40.39% compare to the industry averages of 0.09% and 1.97%, respectively.
AAPL’s shares have gained 21.2% over the past nine months and 36.9% year-to-date to close the last trading session at $177.97.
AAPL’s POWR Ratings reflect this favorable outlook. It has an A grade for Quality. Among the 42 stocks in the Technology - Hardware industry, it is ranked #21. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
To see additional POWR Ratings for Growth, Value, Momentum, Stability, and Sentiment for AAPL, click here.
Panasonic Holdings Corporation (PCRFY)
Headquartered in Kadoma, Japan, PCRFY manufactures and sells various electronic products through five segments: Lifestyle; Automotive; Connect; Industry; and Energy. Its main product offerings include automotive-use batteries, refrigerators, and industrial motors and sensors. As of June 30, four institutions have opened positions in PCRFY, while 11 institutions have increased their positions.
Recently, PCRFY developed a new technology to streamline motion teaching for robots that includes contact with the surrounding environment and control parameters that achieve both performance that correctly completes the taught motion and safety during contact. As the use of industrial robots advances, this development could attract a strong demand across industries.
On July 31, Subaru Corporation (FUJHY) and PCRFY proposed building a medium- to long-term partnership to supply automotive cylindrical lithium-ion batteries to meet demand for Battery Electric Vehicles (BEVs) and automotive batteries in a rapidly expanding market.
Through this partnership, both companies aim to accelerate electrification with the development of the automotive and battery industries.
During the fiscal first quarter that ended June 30, 2023, PCRFY’s net sales increased 2.8% year-over-year to ¥2.03 trillion ($14.08 billion). Its operating profit rose 41.9% from the year-ago value to ¥90.37 billion ($626.74 million). Moreover, the company’s net profit improved 292.8% from the prior-year quarter to ¥206.50 billion ($1.43 billion), and EPS stood at ¥86.06, up 310.4% year-over-year.
The consensus revenue estimate of $14.59 billion for the second quarter (ending September 2023) represents a 3.8% increase year-over-year. The consensus EPS estimate of $0.24 for the current quarter indicates a 38.9% improvement year-over-year. The company has an excellent surprise history, surpassing the consensus revenue and EPS estimates in three of the trailing four quarters.
Over the past three years, its revenue and EBITDA have increased at CAGRs of 6.5% and 7.3%, respectively. Likewise, its EPS has grown at a 35.9% CAGR over the same period.
In addition, the stock’s trailing-12-month net income margin and ROCE of 4.95% and 10.93% are 18.1% and 6.1% higher than the industry averages of 4.19% and 10.31%, respectively. Likewise, its trailing-12-month ROTA of 4.78% is 31.2% higher than the 3.65% industry average.
The stock has gained 36.3% year-to-date to close the last trading session at $11.39.
PCRFY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.
It also has an A grade for Value and a B for Stability and Sentiment. Out of 42 stocks in the same industry, it is ranked first. Click here to see the other ratings of PCRFY for Growth, Momentum, and Quality.
TransAct Technologies Incorporated (TACT)
TACT designs, develops, and markets transaction-based and specialty printers and terminals worldwide. It offers thermal printers and terminals to generate labels, coupons, and transaction records, such as receipts, tickets, and other documents, as well as printed logging and data plotting. Of the total outstanding shares of TACT, institutions own 63.8%.
On May 2, TACT announced the launch of its all-new BOHA! Terminal 2 food safety and FDA-compliant grab ‘n go labeling solution. The BOHA! Terminal 2 improves on the original BOHA! Terminal with more speed, print resolution, label widths, screen brightness and sensitivity, and flexibility. With the innovative hardware, TACT is expected to maintain its operational excellence.
For the fiscal second quarter that ended June 30, 2023, TACT’s net sales stood at $19.91 million, up 57.7% year-over-year, whereas its gross profit increased 99.8% from the prior-year quarter to $10.86 million. Also, its operating income came in at $1.22 million versus an operating loss of $2.95 million in the year-ago quarter.
Its net income came in at $765 thousand and $0.08 per share, compared to the prior-year quarter’s net loss of $2.38 million and $0.24 per share, respectively. TACT’s adjusted EBITDA of $3.18 million improved significantly from the year-ago adjusted EBITDA loss of $2.54 million.
Analysts expect TACT’s revenue for the fiscal year 2023 (ending December 31) to increase 24.5% year-over-year to $72.40 million, whereas its EPS is expected to come in at $0.32. Moreover, it surpassed the consensus revenue and EPS estimates in all of the trailing four quarters, which is promising.
Its revenue has increased at 26.7% and 6.9% CAGRs over the past three and five years. Moreover, its total assets grew at a 16.9% CAGR over the past three years.
TACT’s trailing-12-month ROCE of 13.26% is significantly higher than the 0.09% industry average. Its trailing-12-month net income margin and ROTC of 6.02% and 9.47% are 199.2% and 380.9% higher than the industry averages of 2.01% and 1.97%, respectively.
Over the past nine months, the stock has gained 75.3% to close the last trading session at $7.31.
It’s no surprise that TACT has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Sentiment and a B for Growth, Value, and Momentum. Within the same industry, it is ranked #2.
In addition to the POWR Ratings we’ve stated above, we also have TACT’s ratings for Stability and Quality. Get all TACT ratings here.
What To Do Next?
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AAPL shares were trading at $177.91 per share on Friday afternoon, down $0.06 (-0.03%). Year-to-date, AAPL has gained 37.33%, versus a 17.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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