Despite many investors’ predictions of a market sell-off triggered by the resurgence of COVID-19 cases and high inflation, the demand for advanced technologies is expected to remain high in the digital era. So, irrespective of the market’s near-term reaction to recent developments, we think it is wise to bet on quality tech stocks STMicroelectronics (STM), HP (HPQ), Canon (CAJ), and Trimble (TRMB) because of their attractive valuations and solid growth prospects. So, let’s discuss these names.
Even though the technology industry had one of its best years last year amid the COVID-19 pandemic, investors rotated away from tech stocks earlier this year to cyclical stocks to capitalize on the recovering economy. However, the resurgence of COVID-19 cases due to the rapid spread of the Delta variant has been driving renewed investor interest in the tech stocks.
However, the stock market has been quite volatile of late, with the major indexes falling from their record highs. In addition, the consumer price index increased 5.4% in June. Furthermore, the International Monetary Fund (IMF) has warned that inflation could be persistent. As a result, several investors predict a broad market sell-off in the near term.
But whether or not there is a market sell-off, we think it could be wise to bet on fundamentally strong tech stocks STMicroelectronics N.V. (STM), HP Inc. (HPQ), Canon Inc. (CAJ), and Trimble Inc. (TRMB). They are rated Strong Buy or Buy in our POWR Ratings system. In addition, these four stocks possess a combination of solid growth and value attributes.
STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM is a semiconductor company that offers products such as automotive integrated circuits (ICs), application-specific integrated circuits (ASICs), and radiofrequency (RF). It operates through three segments: Automotive and Discrete Analog; MEMS and Sensors; and Microcontrollers and Digital ICs.
On May 6, 2021, STM launched a new family of ST Intelligent and Integrated Gallium Nitride (GaN) solutions—STi2GaN. Because the unique product combines the power and intelligence in compact, high-performance solutions, it is expected to drive up the company’s sales in the near term.
STM’s net revenue increased 43.4% year-over-year to $2.99 billion for the second quarter ended July 3, 2021. Its operating income grew 358.8% year-over-year to $489 million, while its net income increased 357.2% year-over-year to $412 million. The company’s EPS increased 340% year-over-year to $0.44.
In terms of forward non-GAAP PEG, STM’s 1.12x is 38.3% lower than the 1.81x industry average. And in terms of forward P/B ratio, the stock’s 3.78x is 34.3% lower than the 5.76x industry average.
For the quarter ending September 30, 2021, analysts expect STM’s EPS to come in at $0.46, representing a 76.9% year-over-year increase. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The company’s revenue is expected to increase 19.4% year-over-year to $12.2 billion in its fiscal year 2021. Over the past year, the stock has gained 35.2% to close yesterday’s trading session at $39.33.
STM’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Growth, Quality, Sentiment, and Value. Within the B-rated Semiconductor & Wireless Chip industry, STM is ranked #3 of 99 stocks. To see the additional POWR Ratings for STM (Stability and Momentum), click here.
HP Inc. (HPQ)
HPQ in Palo Alto, Calif., not only provides personal computing and other access devices but also offers imaging and printing products and other related technologies, solutions, and services internationally. The company operates through three segments: Personal Systems; Printing; and Corporate Investments.
On July 27, HPQ agreed to acquire Teradici Corporation, a global innovator in remote computing software. The acquisition is expected to enhance HPQ’s capabilities in the personal systems category by delivering new computer models and services tailored for hybrid work.
The company’s net revenue increased 27.3% year-over-year to $15.90 billion for the second quarter, ended April 30, 2021. HPQ’s non-GAAP net earnings came in at $1.20 billion, up 56% year-over-year. In addition, the company’s non-GAAP EPS increased 82% year-over-year to $0.93.
In terms of forward P/S, HPQ’s 0.54x is 86.7% lower than the 4.06x industry average. Also, in terms of forward EV/S, the stock’s 0.60x is 85.2% lower than the 4.05x industry average.
Analysts expect HPQ’s EPS and revenue to increase 53.1% and 12.1%, respectively, year-over-year to $3.49 and $63.49 billion in its fiscal year 2021. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 70.5% over the past year to close yesterday’s trading session at $28.47.
HPQ’s POWR Ratings reflect its solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system. It has an A grade for Value, and a B grade for Growth and Quality.
Canon Inc. (CAJ)
Headquartered in Tokyo, Japan, CAJ manufactures and sells office multifunction devices, plain paper copying machines, laser and inkjet printers, cameras, diagnostic and lithography equipment. The company operates through four segments: Office Business Unit; Imaging System Business Unit; Medical System Business Unit; and Industry and Others Business Unit.
CAJ developed the new ‘Built-in AEC1 assistance’ technology for digital radiography (DR)2 and CXDI-RF Wireless B1 in March 2021. The new wireless digital radiography device supports a wide range of imaging techniques, including fluoroscopy and general radiography. This innovative product is expected to drive up the company’s sales.
CAJ’s net sales increased 31% year-over-year to $7.94 billion for its fiscal second quarter ended June 30, 2021. The company’s operating profit came in at $696.12 million, versus a $161.47 million operating loss in the prior year period. Its net income was $550.89 million compared to an $80.35 million net loss in the year-ago period. Its EPS came in at $0.53 for the quarter compared to an $0.08 loss per share in the prior-year quarter.
In terms of forward P/S, CAJ’s 0.77x is 81% lower than the 4.06x industry average. The stock’s 0.81x EV/S is 79.9% lower than the 4.05x industry average.
For the quarter ending September 30, 2021, analysts expect CAJ’s EPS and revenue to increase 114.3% and 15.4%, respectively, year-over-year to $0.30 and $7.88 billion., It surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past nine months, the stock surged 35% to close yesterday’s trading session at $23.52.
CAJ’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 Value, Growth, Stability, and Quality. Click here to see more of CAJ’s component grades. It is ranked #1 in the Technology – Hardware industry.
Trimble Inc. (TRMB)
TRMB provides technology solutions that enable professionals and field mobile workers to enhance or transform their work processes worldwide. The Sunnyvale, Calif., company operates through four segments: Buildings and Infrastructure; Geospatial, Resources and Utilities; and Transportation. In addition, the company offers field and office software for route selection and design and provides surveying and geospatial products.
This month, TRMB introduced the Trimble MX50 mobile mapping system for asset management and mapping. By providing clean and accurate data on ground surfaces, it is a practical choice for highway and road inspection. So, this product could drive increased sales for the company.
TRMB’s non-GAAP revenue surged 12% year-over-year to $886.70 million for its fiscal first quarter, ended March 31, 2021. The company’s adjusted EBITDA grew 28.2% year-over-year to $231.3 million. Its non-GAAP net income came in at $167 million, representing a 36.3% year-over-year increase. Its non-GAAP EPS came in at $0.66, up 34.7% year-over-year.
In terms of forward P/B ratio, TRMB’s 5.31x is 7.8% lower than the 5.76x industry average.
Analysts expect its EPS to increase 13.9% year-over-year to $2.79 in its fiscal year 2022. It surpassed consensus EPS estimates in each of the trailing four quarters. TRMB’s revenue is expected to increase 10.4% year-over-year to $3.48 billion in its fiscal year 2021. The stock has gained 88.1% over the past year to close yesterday’s trading session at $84.12.
It’s no surprise that TRMB has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Growth, Value, Stability, and Sentiment.
STM shares were trading at $41.60 per share on Thursday morning, up $2.27 (+5.77%). Year-to-date, STM has gained 12.34%, versus a 18.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal’s fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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