Technology stocks have spit the bit this year, with the S&P 500 Information Technology index dropping 21%, compared with a 17% drop for the overall S&P 500.
“But following the big underperformance, some beaten-down tech stocks present buying opportunities at these levels,” Bank of America strategists wrote in a commentary.
The free-cash-flow to enterprise-value ratio has served as a reliable indicator of tech-stock performance, the strategists say.
So they put together a list of stocks that were recently down at least 20% from their 52-week highs and had FCF-EV ratios of at least 3% (the recent level of the 10-year Treasury yield).
The roster includes tech and communication-services stocks, excluding telecom and media.
Here is the list, in order of FCF-EV ratios.
1. Take-Two Interactive (TTWO), a videogame publisher. FCF-EV ratio: 5.4%.
2. Fidelity National Information Services (FIS), a financial technology company. FCF-EV ratio: 5%.
3. Meta Platforms (META), the social-media titan. FCF-EV ratio: 5%.
4. Zebra Technologies (ZBRA), a data technology company. FCF-EV ratio: 4.7%.
5. Global Payments (GPN), a payment services company. FCF-EV ratio: 4.3%.
6. PayPal (PYPL), the financial services company. FCF-EV ratio: 3.8%.
7. EPAM Systems (EPAM), a digital solutions company. FCF-EV ratio: 3.3%.
8. Advanced Micro Devices (AMD), a semiconductor maker. FCF-EV ratio: 3.3%.
B of A rates all the stocks as buy, except PayPal (neutral) and Zebra Technologies (no rating).
Morningstar’s Take on Meta Platforms
Morningstar analyst Ali Mogharabi assigns Facebook's parent a wide moat and puts fair value for the stock at $384, more than twice recently trades at $180.
“Meta is the largest social network in the world, with over 3.6 billion monthly active users across its apps,” he wrote in a commentary. “The growth in users and user engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers.”
Looking forward, “the combination of these valuable assets and our expectation that advertisers will continue to shift their spending online bodes well for the firm’s top-line growth and cash flow,” Mogharabi said.
Morningstar’s Take on PayPal
Morningstar analyst Brett Horn gives the payment-technology provider a narrow moat and puts fair value for the stock at $135, 65% above recently trades at $82.
“Over the last few years, the market has oscillated between hope and despair when it comes to PayPal,” he noted in a commentary. “The stock roughly tripled in the early stages of the pandemic. But over the last year, the stock has fallen about 75% from its peak.”
As for the current outlook, “with market confidence in the stock at a low ebb, we see a potentially good long-term opportunity.”
The author of this story owns shares of Meta Platforms and PayPal.
