7 low-cost tech gems from the strong side forward

  • The Nasdaq composite has outperformed the S&P 500 and the Dow Jones Industrial Average by a wide margin so far in 2023.
  • Tech stocks, which had been the biggest gainers, pulled back after a massive selloff last year as money returned to the sector.
  • So, I used InvestingPro’s stock filter to find high-quality, undervalued tech gems.
  • Looking for more top-rated stock ideas to protect your portfolio in an increasingly uncertain economic climate? Learn More Members »

The tech-heavy NASDAQ has outperformed the three major U.S. indexes by a wide margin in 2023, rising 22.8 percent as investors turn to growth stocks that fell last year.

That compares with a 7.3% year-to-date increase for the Kasmark S&P 500 index and a 0.3% decline for the blue-chip Dow Jones Industrial Average.

With that in mind, I used the InvestingPro Stock Filter to identify tech stocks that aren’t the best value to buy in the current market climate.

With InvestingPro, you can get comprehensive information and a company’s perspective in one place, eliminating the need to gather information from multiple sources, such as SEC filings, company websites, and market reports.

In addition to analyst targets, InvestingPro provides complete information on a single page view, saving you time and effort. Try it for free for a week!

h2 My Method:/h2

Using InvestingPro’s Stock Screener, I ran a methodical approach to sift through the 7,500-plus stocks listed on US exchanges to narrow down a small watch list of high-quality technology companies expected to deliver strong returns to investors in the coming months.

My focus has been on technology companies with strong upside, strong profitability, healthy balance sheets, positive free cash flow and strong growth prospects.

To find those companies, I first searched their names with a 10% or more return on common equity (ROCE).. Generally, a high ROCE indicates that a firm is generating a high return on equity capital. It is a ratio used to measure the amount of profit or net income a company earns per dollar of investment.

Source: InvestingPro, Screener Screen

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Then I looked for stocks They return more than 10% Return on Invested Capital (ROIC)This is a financial measure that helps assess whether a company is creating value for investment.

Then I narrowed that down to businesses At least 10% average annual growth EBITDA margins, which is a popular and widely used measure of profitability. As a percentage of earnings, it measures how much you earn before interest, taxes, depreciation, and amortization.

The last and final measure of profitability I chose to check was the companies. Unspent Free Cash Flow (UFCF) of over $500 million. Essentially, UFCF helps identify cash flow from a company’s core operations. Firms that can generate higher UFCF have more discretionary cash, which can be used to fund reinvestments or future growth strategies.

Finally, put nouns in a InvestingPro’s ‘Fair Value’ is greater than or equal to 20%. Fair value is determined based on various valuation models, including price-to-earnings ratios, price-to-sales ratios, and price-to-book multiples.

And those companies a Market value of 5 billion dollars and more I made my watch list.

Once the criteria were applied, I was generally fair 12 companies.

Source: InvestingPro, Assets That Match Screen

It is not surprising 11 of them Enjoy the present InvestingPro ‘Financial Health’ score over 2.75. This is important as companies with health scores above 2.75 over the past 7 years have outperformed the broader market by a wide margin.

h2 7 Underpriced Tech Gems to Buy Now:/h2

As such, these are 7 most promising low-cost tech gems Based on InvestingPro’s models, the top earners in the coming months are:

  1. Skyworks Solutions (NASDAQ:SWKS) (Fair value upside: +41.1%)
  2. EPAM Systems (NYSE:EPAM) (Fair value upside: + 37.5%)
  3. Conscious (NASDAQ:CTSH) (Fair Value Up: +33.5%)
  4. NetApp (NASDAQ:NTAP) (Fair value upside: +32.3%)
  5. Fortinet (NASDAQ: FTNT ) (Fair value upside: + 30.1%)
  6. Adobe (NASDAQ: ADBE ) (Fair value upside: +29.3%)
  7. Cisco Systems (NASDAQ:CSCO) (Actual value up: +27.2%)

Source: InvestingPro, Screener Summary

For the full list of 12 tech gems that made my watchlist, start your free 7-day trial with InvestingPro now!

If you are already an InvestingPro subscriber, you can view my picks here.


Disclosure: I am at the time of this article Short through the S&P 500 and Nasdaq 100 at ProShares Short S&P 500 ETF (SH) and ProShares Short QQQ ETF (PSQ). I regularly adjust my portfolio of private stocks and ETFs based on an ongoing risk assessment of both the macroeconomic environment and companies’ financials.

The views expressed in this article are solely the opinion of the author and should not be taken as investment advice.

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