Despite the Fed raising interest rates twice so far this year, the U.S. inflation reached a new 40-year high of 8.6% in May 2022, raising investors’ concerns over the Fed’s forthcoming rate hikes becoming more aggressive. This increases the odds of the economy slipping into a recession. Following the release of the inflation data, major stocks tanked last Friday, with the tech-heavy Nasdaq Composite falling by 3.5%. The interest-rate-sensitive tech industry is expected to witness immense volatility in the coming days.
On the bright side, consumers’ growing reliance on tech products and solutions, impressive breakthroughs, and rising corporate and government investments in this space should keep driving the industry’s growth. Though many tech stocks have not yet hit bottom, some high-quality stocks look attractive at their current price levels.
It could be wise to invest in quality tech stocks Celestica Inc. (CLS), Fujitsu Limited (FJTSY), AudioCodes Ltd. (AUDC), Open Text Corporation (OTEX), and Sapiens International Corporation N.V. (SPNS), which are well-positioned to rebound soon. These stocks are rated Strong Buy in our proprietary rating system.
Celestica Inc. (CLS)
CLS is a Canadian multinational electronics manufacturing services company that provides hardware platform and supply chain solutions through Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS) segments. The company's products and services include design, prototyping, printed circuit assembly, full system assembly, power converters, memory packages, and repair services. It serves aerospace and defense, industrial, energy, health tech, capital equipment, OEMs, cloud-based, and other service providers.
On March 1, 2022, CLS company Atrenne, an advanced, vertically integrated component and custom system provider serving aerospace, defense, healthcare, computing, communications, and other technology-driven industries, earned ISO 13485:2016 certification for medical device design. This will enable the company to expand its expertise in systems design at the highest levels of quality and meet rising demand across the markets.
For its fiscal 2022 first quarter ended March 31, 2022, CLS’ revenue increased 26.9% year-over-year to $1.57 billion. The company’s non-IFRS gross profit came in at $138.10 million, representing a 29.8% year-over-year improvement. Its non-IFRS operating earnings came in at $69.30 million for the quarter, indicating a 60.1% rise from the prior-year period. While its non-IFRS net earnings increased 73.4% year-over-year to $48.20 million, its non-IFRS EPS grew 77.3% to $0.39. As of March 31, 2022, the company had $346.60 million in cash and cash equivalents.
Analysts expect the company’s EPS to be $1.67 for fiscal 2022 ending December 31, 2022, representing a 28.3% rise from the prior-year period. CLS surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $6.56 billion for the same fiscal year indicates a 16.4% rise from the prior-year period.
CLS’ 0.27X forward EV/Sales is 90.4% lower than the 2.81x industry average. In terms of forward Price/Sales, CLS is currently trading at 0.21x, which is 92.8% lower than the 2.84x industry average. Over the past month, the stock has gained 6.4% to close Friday’s trading session at $10.85.
CLS’ POWR Ratings reflect this promising outlook. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Growth and a B grade for Sentiment and Value. Click here for the additional ratings for CLS’ Stability, Quality, and Momentum. CLS is ranked #4 of 81 stocks in the Technology - Services industry.
Fujitsu Limited (FJTSY)
Headquartered in Tokyo, Japan, FJTSY is an information and communication technology (ICT) company worldwide. The company operates through three segments—Technology; Ubiquitous; and Device Solutions. It serves automotive, manufacturing, retail, financial services, transport, telecommunications, healthcare industries, and services providers.
On June 6, 2022, FJTSY announced its collaboration with Japanese telecommunications company Nippon Telegraph and Telephone Corporation (NTT) and mobile operator NTT DOCOMO, Inc., to conduct joint trials toward the realization of practical applications for 6G. In the joint trials, the partners will utilize radio waves in the high-frequency range of 100 GHz and 300 GHz, aiming to develop a high-frequency wireless device that utilizes a compound semiconductor. Through this joint experiment, the companies aim to develop technology resistant to obstruction and realize stable high-speed wireless communication over 100 Gbps. This should help them gain wide recognition across the industry.
As of March 31, 2022, the company had ¥484.02 billion ($3.59 billion) in cash and cash equivalents. Analysts expect the stock’s revenue to improve 109.5% year-over-year to $27.89 billion for fiscal 2023 ending March 31, 2023.
The stock’s 0.95x forward EV/Sales is 66.3% lower than the 2.81x industry average. In terms of forward Price/Sales, FJTSY is currently trading at 0.97x, which is 66% lower than the 2.84x industry average. Over the past month, the stock has lost 9.7% to close Friday’s trading session at $26.82.
FJTSY’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has a B grade for Value and Quality. Click here for the additional ratings for FJTSY’s Stability, Sentiment, Growth, and Momentum. FJTSY is ranked #6 in the Technology - Services industry.
AudioCodes Ltd. (AUDC)
AUDC is an Israel-based company that provides advanced communications software and productivity solutions for the digital workplace. The company enables enterprises and service providers to build and operate all IP voice networks in unified communications, contact centers, and hosted business services and serves OEMs, system integrators and distributors, and network equipment providers worldwide.
On April 25, 2022, AUDC was approved as a partner for Microsoft Corporation’s (MSFT) Operator Connect Accelerator. This allows AUDC to offer simplified customer onboarding and operation through the AudioCodes Live Cloud solution, enabling operators to sell voice services via the Microsoft Teams Operator Connect Marketplace and Direct Routing connectivity to their customers while reducing the total cost of ownership.
For its fiscal 2022 first quarter ended March 31, 2022, AUDC’s total revenues increased 12.8% year-over-year to $66.36 million. The company’s gross profit came in at $44.36 million, up 10.2% from the prior-year period. It had $37.98 million in cash and cash equivalents as of March 31, 2022.
The stock’s 2.19x forward EV/Sales is 22% lower than the 2.81x industry average. In terms of forward Price/Sales, AUDC is currently trading at 2.59x, 8.7% lower than the 2.84x industry average. Over the past month, the stock has gained 7.4% to close Friday’s trading session at $22.88.
AUDC’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B grade for Stability and Sentiment. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for AUDC’s Momentum, Growth, and Value here. AUDC is ranked #1 of 52 stocks in the Technology - Communication/Networking industry.
Open Text Corporation (OTEX)
Based in Waterloo, Canada, OTEX designs, develops and sells information management software and solutions. The company’s Information Management solutions delivered at scale in the OpenText Cloud help organizations optimize their digital supply chains. Its Content Services solutions range from content collaboration and intelligent capture to records management and archiving. It serves organizations, enterprises, mid-market companies, public-sector agencies, small- and medium-sized businesses, and direct consumers internationally.
On May 20, 2022, Tokio Marine Holdings, Inc.’s (TKOMY) Tokio Marine Insurance Vietnam (TMIV) subsidiary, a property and casualty (P&C) insurer in Vietnam, implemented OTEX’s OpenText solutions to use its high-quality insurance and risk management services and modernize its client communication strategy and enable rapid delivery of information to customers. This will also enable TMIV to modernize internal processes and cut time spent on preparing insurance documents by almost half.
For its fiscal year 2022 third quarter ended March 31, 2022, OTEX’s total revenues increased 5.9% year-over-year to $882.28 million. The company’s gross profit came in at $657.29 million, up 4.9% from the prior-year period. It had $1.63 billion in cash and cash equivalents as of March 31, 2022.
The company surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. Analysts expect the stock’s revenue to improve 5.3% year-over-year to $4.45 billion for fiscal 2022 ending June 30, 2022.
OTEX’s 12.06x non-GAAP forward PEG is 33.1% lower than the 18.04x industry average. In terms of forward EV/EBITDA, the stock is currently trading at 11.21x, 25.6% lower than the 15.05x industry average. Over the past month, the stock has gained 4.2% to close yesterday’s session at $38.60.
OTEX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
The stock has a B grade for Value, Quality, Stability, and Sentiment. Click here to see the additional ratings for OTEX (Momentum and Growth). The stock is ranked #8 of 156 stocks in the Software - Application industry.
Sapiens International Corporation N.V. (SPNS)
Based in Israel, SPNS provides software solutions for the insurance and financial services industries internationally. The company provides tailor-made solutions based on its Sapiens eMerge platform; and program delivery, business, and managed services. It markets and sells its products and services through direct and partner sales.
On May 24, 2022, the Wyoming Department of Workforce Services (DWS) modernized its Sapiens CoreSuite for Workers’ Compensation platform to take advantage of new capabilities for more rapid and efficient upgrades while ensuring the platform is kept up to date. The upgrade is designed to optimize operational efficiencies, increase customer satisfaction, and boost profitability for workers’ compensation providers, administrators, and state funds. This should nurture SPNS’ relationship with DWS in the long run.
SPNS’ fiscal 2022 first-quarter non-GAAP revenue increased 6.8% year-over-year to $117.70 million. The company’s non-GAAP gross profit came in at $52.90 million, indicating a 7.5% year-over-year improvement. Its non-GAAP operating income came in at $20.80 million for the quarter, representing a 9.3% rise from the year-ago period. While its non-GAAP net income increased 16% year-over-year to $17.30 million, its non-GAAP EPS grew 14.8% to $0.31. As of March 31, 2022, the company had $206 million in cash and cash equivalents.
Analysts expect SPNS’ EPS to be $1.25 for fiscal 2022 ending December 31, 2022, representing a 5.9% year-over-year improvement. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $497 million in the same fiscal year represents a 7.2% year-over-year improvement.
The stock’s 2.29x forward EV/Sales is 18.6% lower than the 2.81x industry average. In terms of forward Price/Sales, SPNS is currently trading at 2.45x, which is 13.8% lower than the 2.84x industry average. Over the past month, the stock has lost 7.7% to close yesterday’s trading session at $22.08.
SPNS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
It has a B grade for Value, Growth, Sentiment, and Stability. Click here to see the additional ratings for SPNS’ Momentum and Stability. SPNS is ranked #3 of 56 stocks in the Software - Business industry.
CLS shares were trading at $10.27 per share on Monday afternoon, down $0.58 (-5.35%). Year-to-date, CLS has declined -7.73%, versus a -20.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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