Concerns over the Federal Reserve’s ability to tame the multi-decade high inflation by raising interest rates further without affecting economic growth have led to a massive tech sell-off over the past few weeks. The tech-heavy Nasdaq Composite lost 16.2% over the past month. Experts expect the tech-heavy index to witness further downside in the near term.
However, the growing reliance of businesses on tech solutions, consistent innovations, and rising corporate and government investments in this space should keep driving the industry’s growth. Therefore, it could be wise to buy the dip in quality technology stocks to benefit significantly from their rebound.
Beaten-down tech stocks VMware, Inc. (VMW), Jabil Inc. (JBL), Fujitsu Limited (FJTSY), Semtech Corporation (SMTC), and Cirrus Logic, Inc. (CRUS) possess sound fundamentals and solid growth prospects. Since these stocks are currently trading at attractive valuations, it could be wise to bet on them now.
VMware, Inc. (VMW)
VMW develops and applies virtualization technologies with x86 server-based computing, separating application software from the underlying hardware. The company’s products and technology solutions include multi-cloud, virtual cloud networking, digital workspace, application modernization, and intrinsic security solutions. It sells its products through distributors, resellers, system vendors, and systems integrators.
On May 4, 2022, VMW and Wipro Limited (WIT), an India-based global information technology, consulting, and business process services company, expanded their partnership to combine VMware Cross-Cloud services with Wipro FullStride Cloud Services to help global enterprises accelerate app modernization and reduce the cost, complexity, and risk of moving to the cloud. As digital transformation and multi-cloud are gaining momentum, this offering will help companies operate their businesses more efficiently and securely.
VMW’s total revenues for its fiscal 2022 fourth quarter ended January 28, 2022, increased 7.2% year-over-year to $3.53 billion. The company’s non-GAAP operating income came in at $1.14 billion, representing a 0.4% year-over-year improvement. It had $3.61 billion in cash and cash equivalents as of January 28, 2022.
VMW surpassed the Street’s EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $13.78 billion for fiscal 2023 ending January 31, 2023, represents a 7.2% rise from the prior-year period. The company’s EPS is expected to grow at a 6.2% rate per annum over the next five years.
The stock’s 0.99x non-GAAP forward PEG is 26.3% lower than the 1.34x industry average. In terms of forward EV/EBIT, VMW is currently trading at 12.85x, which is 17.9% lower than the 15.64x industry average. VMW’s trailing-12-month ROE, ROA, and ROTC are 44.5%, 5.3%, and 10.9%, respectively. The stock’s price has decreased 14.5% over the past month and closed yesterday’s trading session at $93.63, down 44.2% from its 52-week high of $167.83.
VMW’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates 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 a B grade for Value, Quality, Stability, and Sentiment. Click here to see the additional ratings for VMW’s Growth and Momentum. VMW is ranked #1 of 57 stocks in the Software - Business industry.
Jabil Inc. (JBL)
JBL provides electronic design and manufacturing services and solutions worldwide. The company provides systems assembly, regulatory compliance, reliability tests, direct-order fulfillment, and configure-to-order services. It serves 5G, wireless and cloud, digital print and retail, industrial and semi-cap, networking and storage, automotive and transportation, connected devices, healthcare and packaging, and mobility industries.
On May 18, 2022, JBL’s Jabil Healthcare division launched the Qfinity autoinjector platform, a simple, reusable, and modular solution for subcutaneous (SC) drug self-administration to support the emerging prioritization of sustainable drug delivery within the pharmaceutical industry. The Qfinity autoinjector platform delivers a 65% reduction in cost per injection versus the market-leading disposable autoinjectors, 60% reduction in carbon footprint per injection, 50% smaller manufacturing footprint, and a 70% reduction in CAPEX.
For its fiscal year 2022 second quarter ended February 28, 2022, JBL’s net revenue increased 10.6% year-over-year to $7.55 billion. The company’s gross profit came in at $609 million, up 7% from its year-ago period. Its non-GAAP operating income came in at $344 million for the quarter, indicating a 20.7% year-over-year improvement. JBL’s non-GAAP net income came in at $246 million, representing a 26.8% rise from the prior-year period. And its non-GAAP EPS increased 32.3% year-over-year to $1.68. The company had $1.09 billion in cash and equivalents as of February 28, 2022.
Analysts expect the company’s EPS to hit $7.26 for its fiscal 2022 ending August 31, 2022, representing a 29.4% rise from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $32.70 billion for the same fiscal year represents an 11.7% year-over-year improvement. Its EPS is expected to grow at a rate of 12% per annum over the next five years.
The stock’s 0.35x non-GAAP forward PEG is 73.9% lower than the 1.34x industry average. In terms of forward EV/EBIT, JBL is currently trading at 7.18x, 54.1% lower than the 15.64x industry average. JBL’s trailing-12-month ROE, ROA, and ROTC are 36.4%, 4.7%, and 13.5%, respectively. The stock closed yesterday’s trading session at $58.39, down 19% from its 52-week high of $72.11.
JBL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and a B grade for Quality, Growth, and Value. Click here to see the additional ratings for JBL (Momentum and Stability). JBL is ranked #6 of 80 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 May 17, 2022, FJTSY and Riken, a large scientific research institute in Japan, launched a joint research project on next-generation IT drug discovery technology utilizing the supercomputer Fugaku and simulation integrated AI to accelerate digital transformation in drug discovery, explore promising new areas in this process, and reduce development period and costs for new drug development. This approach will improve the accuracy and speed of molecular simulation and establish innovative technologies that can predict changes in the structure of target proteins over a wide range.
As of March 31, 2022, the company had ¥484.02 billion ($3.81 billion) in cash and cash equivalents. Analysts expect the stock’s revenue to improve 117.1% year-over-year to $28.90 billion for fiscal 2022 ending March 31, 2022.
FJTSY’s 1.06x forward EV/Sales is 61.3% lower than the 2.74x industry average. In terms of forward EV/EBIT, FJTSY is currently trading at 10.99x, 29.7% lower than the 15.64x industry average. The stock’s trailing-12-month ROE, ROA, and ROTC are 13.1%, 4.2%, and 7.1%, respectively. The stock closed yesterday’s trading session at $31.23, down 23.1% from its 52-week high of $40.62.
FJTSY’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has a B grade for Value, Stability, Sentiment, and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for FJTSY’s Growth and Momentum here. FJTSY is ranked #1 in the Technology - Services industry.
Semtech Corporation (SMTC)
SMTC designs, develops, manufactures, and markets analog and mixed-signal semiconductor products and advanced algorithms internationally. The company serves OEMs and their suppliers in the enterprise computing, communications, and consumer and industrial end-markets. It sells its products directly, as well as through independent sales representative firms and independent distributors.
On May 19, 2022, Cranberry Analytics, a water management company based in India, chose to integrate SMTC’s LoRa devices and the LoRaWAN standard into its ultrasonic meters for smart water metering. SMTC’s LoRa provides cost-effective sensors and strong signal propagation capabilities that are necessary for deep in-building or underground connectivity. LoRaWAN integration into the Cranberry Analytics water meters will allow long-range data transmission while reducing costs and keeping customers' data secure. This will nurture SMTC’s relationship with Cranberry Analytics.
For its fiscal 2022 fourth quarter ended January 30, 2022, SMTC’s net sales increased 15.7% year-over-year to $190.55 million. The company’s gross profit came in at $122.10 million, representing a 21.5% year-over-year improvement. Its income from operations came in at $42.96 million for the quarter, up 126.7% from the prior-year period. SMTC’s non-GAAP net income came in at $45.66 million, indicating a 35.9% rise from the year-ago period. Its non-GAAP EPS increased 37.3% year-over-year to $0.70. As of January 30, 2022, the company had $279.60 million in cash and cash equivalents.
The stock’s 0.94x non-GAAP forward PEG is 29.9% lower than the 1.34x industry average. In terms of forward EV/EBIT, SMTC is currently trading at 14.47x, 7.5% lower than the 15.64x industry average. SMTC’s trailing-12-month ROE, ROA, and ROTC are 17.5%, 8.2%, and 9.9%, respectively. The stock has lost 5.4% over the past month to close yesterday’s trading session at $59.09, down 37.8% from its 52-week high of $94.92.
SMTC’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 an A grade for Quality and a B grade for Growth. Click here to see the additional ratings for SMTC (Value, Sentiment, Stability, and Momentum). The stock is ranked #7 of 95 stocks in the B-rated Semiconductor & Wireless Chip industry.
Cirrus Logic, Inc. (CRUS)
CRUS provides integrated circuits (ICs) for audio and voice signal processing applications. The company offers portable products in smartphones, tablets, digital headsets, and wearables. Its non-portable audio and other products include analog and mixed-signal components that target the consumer market, including smart home applications and the automotive, energy, and industrial markets.
On July 8, 2021, CRUS agreed to acquire Lion Semiconductor, an electronic parts supplier, for $335 million in cash. The acquisition affords CRUS access to Lion’s proprietary fast-charging products and robust intellectual property portfolio and accelerates its growth in the high-performance mixed-signal business.
CRUS’ net sales for its fiscal 2022 fourth quarter ended March 26, 2022, increased 66.9% year-over-year to $489.97 million. The company’s non-GAAP gross profit came in at $258.99 million, representing a 74.6% rise from the prior-year period. Its non-GAAP operating income came in at $135.94 million, up 220.6% from the year-ago period. While its non-GAAP net income increased 196.3% year-over-year to $117.71 million, its non-GAAP EPS increased 204.6% to $2.01. The company had $369.81 million in cash and cash equivalents as of March 26, 2022.
Analysts expect the company’s revenue to reach $1.83 billion for its fiscal year 2023, ending March 31, 2023, representing a 2.5% rise from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. CRUS’ EPS is expected to grow at a 10.7% rate per annum over the next five years.
CRUS’ 2.36x forward EV/Sales is 13.7% lower than the 2.74x industry average. In terms of forward EV/EBIT, CRUS is currently trading at 10.35x, 33.8% lower than the 15.64x industry average. CRUS’ trailing-12-month ROE, ROA, and ROTC are 21.8%, 11.7%, and 14%, respectively. The stock closed yesterday’s trading session at $79.86, down 16.7% from its 52-week high of $95.84.
CRUS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B grade for Value, Sentiment, and Quality. Click here to see the additional ratings for CRUS (Momentum and Stability). CRUS is ranked #2 in the Semiconductor & Wireless Chip industry.
VMW shares were trading at $95.48 per share on Thursday afternoon, up $1.85 (+1.98%). Year-to-date, VMW has declined -17.60%, versus a -17.09% 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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