Small-cap tech stocks have struggled in recent months, with the tech sector representing the No. 2 detractor from the Russell 2000 small-cap index so far this year, after healthcare.
“Tech ranks in the middle of our small-cap sector framework on poor valuations, revisions and technicals,” Bank of America strategists and analysts wrote in a commentary.
“The backdrop of rising rates, inflation and growth concerns may remain an overhang near-term. But positioning risk is limited, and we are seeing some momentum in flows and in BofA upgrades relative to downgrades.”
BofA’s top ideas for small- and mid-cap tech stocks include:
· Gitlab (GTLB) , an open-source software company;
· Udemy (UDMY) , an online education marketplace;
· DoorDash (DASH), the online food delivery company;
· ON Semiconductor (ON), a chip maker;
· CrowdStrike (CRWD), a cybersecurity technology company;
· Zscaler (ZS), a cloud security company;
· Juniper Networks (JNPR), a network technology company;
· Jabil, (JBL), a contract manufacturer.
BofA’s take on DoorDash
“We believe DoorDash has continued to gain share throughout 2021 and 2022, despite growth converging with the industry (and Uber Eats),” said BofA analyst Michael McGovern.
“According to our debit and credit card data on online spending in the restaurant category, industry growth was just 4% year on year in the first quarter.” But, DoorDash reported 25% gross order value growth.
Management’s guidance for the second quarter implies 18% GOV growth, and BofA credit and debit card data point to just 3% industry growth in April, McGovern said. That “suggests DoorDash will continue to significantly outgrow the industry and take share in the second quarter.”
BofA’s Take on Juniper
“We continue to be positive on Juniper,” BofA analysts said. “We believe the acceleration in order growth (four consecutive quarters of double-digit growth on an adjusted basis) will translate into higher revenue growth in 2022 and 2023, especially once supply chain constraints begin to alleviate.”
To be sure, the analysts warned that comparisons will be difficult for the second quarter. But, “Juniper sees strong order momentum across customer verticals and solutions, with solid underlying demand for cloud and data centers and strong spending growth among service providers,” the analysts said.
BofA’s Take on CrowdStrike
“We believe the market opportunity is vast,” the analysts said. “The company continues to grow its total addressable market by introducing additional modules, supported by the increasing importance of data-driven resources and the evolving threat landscape.”
In addition, “the company keeps delivering better-than-expected results, driven by continued zero-trust adoption, legacy displacements, and migration to cloud,” the analysts said. “We highlight limited competition for cloud-based, next-generation endpoint solutions, which results in sustainably high annual recurring revenue growth rates, at 60% to 70% year-on-year.”
