Driven by the onslaught of inflation, aggressive interest rate hikes, and layoffs, tech stocks have witnessed significant losses this year. The tech industry lost a massive $7.40 trillion in a year.
However, U.S. tech executives remain optimistic, and the industry might rebound in the near term. According to an Ernst & Young tech leaders' poll, 74% of business leaders see opportunities for their organizations despite recessionary concerns.
In addition, Wedbush analysts believe that the overall tech sector would be up significantly in 2023 from current levels, with big tech, software, and semis leading the sharp rebound.
Furthermore, rapid digitalization should drive the industry’s growth amid increased demand for tech products and services. The digital transformation market is anticipated to grow to $2.07 trillion by 2027, growing at a CAGR of 23% from 2022 to 2027.
Given this backdrop, we think fundamentally strong tech stocks Cisco Systems, Inc. (CSCO), Juniper Networks, Inc. (JNPR), and AudioCodes Ltd. (AUDC) could be solid buys this January. However, the fundamentally weak tech stock Avaya Holdings Corp. (AVYA) might be best avoided.
Stocks to Buy:
Cisco Systems, Inc. (CSCO)
CSCO manufactures and sells Internet Protocol-based networking and other products related to the communications and information technology industry. The company serves businesses of various sizes, governments, public institutions, and service providers.
On December 7, CSCO’s announced a quarterly dividend of $0.38 per common share, payable to shareholders on January 25, 2023. This reflects the shareholder return ability of the company.
On November 1, CSCO expanded its portfolio of specializations available through the company’s partner program. The six new specializations would focus on customer priorities and represent fast-growing market opportunities for the company and its partners in areas where CSCO has been innovating.
For the fiscal first quarter ended October 29, CSCO’s total revenue increased 5.7% year-over-year to $13.63 billion. The company’s non-GAAP net income increased 2.1% year-over-year to $3.55 billion. CSCO’s non-GAAP EPS for the fiscal quarter increased by 4.9% from the prior-year period to $0.86.
For the fiscal second quarter ending January 2023, analysts expect CSCO’s revenue to come in at $13.41 billion, representing an increase of 5.4% year-over-year. For the same quarter, the consensus EPS estimate of $0.86 indicates a 1.8% year-over-year increase. The company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 8.6% over the past six months to close its last trading session at $47.53. Moreover, it has gained 17.3% over the past three months.
CSCO’s POWR Ratings reflect a promising outlook. CSCO's overall A rating translates to 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 for Stability. Within the Technology - Communication/Networking industry, it is ranked #3 out of 47.
Click here to see the additional POWR Ratings for CSCO (Growth, Value, Momentum, and Sentiment).
Juniper Networks, Inc. (JNPR)
JNPR designs, develops, and sells network products and services worldwide. The company’s product offerings include routing products, switching products, and security products.
On November 30, 2022, PT IndoInternetTbk (Indonet), an Indonesian digital infrastructure provider, chose JNPR’s Juniper Apstra to assist in the automation, modernization, and facilitation of a pioneer network infrastructure expansion. This could help JNPR strengthen its global presence.
On October 25, JNPR announced a dividend of $0.21 per share, which was payable to stockholders on December 22. This reflects the company’s ability to pay back its stockholders sustainably.
In the fiscal third quarter ended September 30, JNPR’s total revenue increased 19% year-over-year to $1.41 billion. Non-GAAP operating income increased 23.2% year-over-year to $243.70 million. Non-GAAP net income came in at $190.80 million, while its net income per share stood at $0.58, up 25.5% and 26.1% from their year-ago values, respectively.
For the fiscal fourth quarter (ending December 2022), analysts expect JNPR’s revenue to come in at $1.48 billion, representing an increase of 14.2% year-over-year. For the same quarter, the consensus EPS estimate of $0.65 indicates a 15.5% year-over-year increase. The company has surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 8.9% over the past six months and 22.1% over the past three months to close its last trading session at $31.78.
It’s no surprise that JNPR has an overall B rating, which equates to Buy in our proprietary rating system. JNPR has a B grade for Quality. Within the same industry, it is ranked #5.
To see the additional POWR Ratings for Growth, Value, Momentum, Sentiment, and Stability for JNPR, click here.
AudioCodes Ltd. (AUDC)
AUDC, headquartered in Lod, Israel, provides advanced communications software, products, and productivity solutions for the digital workplace. The company provides solutions, products, and services for unified communications, contact centers, VoiceAI business lines, and service provider businesses.
AUDC’s trailing-12-month EBIT margin of 11.92% is 80% higher than the industry average of 6.62%. Its trailing-12-month net income margin of 10.41% is 220.8% higher than the 3.25% industry average.
In terms of its forward EV/Sales, AUDC is trading at 1.63x, 31.6% lower than the industry average of 2.39x. The stock’s forward EV/EBIT multiple of 10.35 is 32.1% lower than the industry average of 15.25.
AUDC’s revenues came in at $69.72 million for the third quarter ended September 30, up 10% year-over-year. Its non-GAAP net income came in at $10.52 million, while its non-GAAP net earnings per share came in at $0.32.
Street expects AUDC’s revenue to increase 10.2% year-over-year to $73.15 million for the first quarter ending March 2023. For the same quarter, the consensus EPS estimate of $0.36 indicates a 9% year-over-year increase.
AUDC’s shares have gained 1.3% intraday to close the last trading session at $17.77. It has gained 2.4% over the past five days.
AUDC’s strong fundamentals are reflected in its POWR Ratings. The stock's overall A rating translates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value and Stability. It is ranked first in the same industry. Click here for the additional POWR Ratings for Growth, Momentum, and Sentiment for AUDC.
Stock to Avoid:
Avaya Holdings Corp. (AVYA)
AVYA provides digital communications products, solutions, and services through its subsidiaries for businesses worldwide. The company operates through two segments: Products & Solutions and Services.
As reported by the Wall Street Journal, AVYA is reaching a chapter 11 bankruptcy filing to restructure its balance sheet in a bid to turn around its business and move past accounting problems.
AVYA’s trailing-12-month EBIT margin of 1.37% is 79.3% lower than the industry average of 6.62%. Its trailing-12-month ROTC of 0.84% is 74.2% lower than the industry average of 3.24%.
During the third fiscal quarter that ended June 30, AVYA’s revenue decreased 21.2% year-over-year to $577 million. Its non-GAAP gross profit fell 25.2% from the prior-year period to $220 million.
The company’s non-GAAP net income declined 127.4% year-over-year to a negative $20 million. The company’s non-GAAP loss per share came at $0.24 compared to non-GAAP earnings per share of $0.75 in the prior-year quarter.
AVYA’s revenue is expected to decline 8.2% from its prior-year quarter to $654.30 million for its fiscal first quarter ending December 2022. Its EPS is estimated to be negative $0.09.
The stock has plunged 99.1% over the past year to close the last trading session at $0.18. Moreover, it has lost 9.4% intraday.
AVYA’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, translating to a Sell in our proprietary rating system.
It has an F grade for Sentiment and Quality and a D for Growth, Momentum, and Stability. Within the same industry, it is ranked #46. Get additional POWR Ratings for AVYA here.
CSCO shares were trading at $47.20 per share on Wednesday afternoon, down $0.33 (-0.69%). Year-to-date, CSCO has declined -23.18%, versus a -18.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
3 Tech Stocks to Buy This January and 1 to Sell StockNews.com
