Although the current stock market volatility has created unease, it can also emerge as an opportunity to invest in top tech stocks for the long run. Therefore, quality technology stocks Cisco Systems, Inc. (CSCO), Gartner, Inc. (IT), and Extreme Networks, Inc. (EXTR) could be worth buying.
With the Federal Reserve likely to continue hiking its benchmark interest rate through the spring, investors should expect more downside pressure from headwinds associated with higher borrowing costs and the increasing likelihood of a recession. After enduring a brutal time last year, this could induce further pressure on the interest-rate-sensitive sector.
However, there has been a rising demand for advanced tech solutions and increased investments due to rapid digitalization, which should aid quality tech stocks in the long run. According to a GoodFirms survey, 76.4% of organizations plan to increase their IT Spending in 2023.
While tech companies continue to innovate and develop new products to fuel their growth, tech stocks offer investors the potential for great returns, making them an ideal investment choice. Furthermore, the global information technology market is expected to grow at a 7.9% CAGR to $12 trillion in 2027.
Given this backdrop, fundamentally strong tech stocks CSCO, IT, and EXTR could be solid buys to yield substantial returns for the long haul.
Cisco Systems, Inc. (CSCO)
CSCO designs, manufactures, and sells Internet Protocol-based networking and other products related to the communications and information technology industry. In addition, it provides infrastructure platforms, including networking technologies of switching, routing, wireless, and data center products.
On February 27, Mercedes-Benz entered into a partnership with CSCO to provide optimal mobile office experience in its brand-new Mercedes-Benz E Class vehicles.
CSCO’s Executive Vice President & General Manager, Security & Collaboration, Jeetu Patel, said, “The mobile office cannot progress without the reliable and secure collaboration technology that only Cisco can provide. This partnership with Mercedes-Benz, a leader in automotive luxury, marks a big step forward in delivering the flexibility that the hybrid workforce demands.”
On February 15, CSCO increased its quarterly dividend by 3% to $0.39 per share of common stock, payable on April 26, 2023. The company’s annual dividend of $1.56 yields 3.18% at the current price level. Its dividend payouts have increased at a 2.8% CAGR over the past three years and a 5.6% CAGR over the past five years. CSCO has a record of 11 years of consecutive dividend growth.
In the fiscal second quarter that ended January 28, 2023, CSCO’s total revenues increased 6.9% year-over-year to $13.59 billion. Its gross margin grew 4.7% from the year-ago value to $8.43 billion. The company’s non-GAAP net income increased 2.6% year-over-year to $3.64 billion, while its adjusted EPS came in at $0.88, representing an increase of 4.8% year-over-year.
Analysts expect CSCO’s EPS and revenue to increase 11.6% and 12.2% year-over-year to $0.97 and $14.40 billion for the fiscal third quarter (ending April 30, 2023), respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 9.3% to close the last trading session at $49.11.
CSCO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CSCO is also rated A in Quality and B for Stability. Within the B-rated Technology – Communication/Networking industry, it is ranked #3 of 49 stocks.
To see additional POWR Ratings for Growth, Value, Momentum, and Sentiment for CSCO, click here.
Gartner, Inc. (IT)
IT operates as a research and advisory company. The firm operates through its three broad segments: Research; Conferences; and Consulting.
IT’s trailing-12-month EBIT margin and net income margin of 21.22% and 14.75% are 260.9% and 405.7% higher than the industry averages of 5.88% and 2.92%. Its trailing-12-month ROCE of 269.78% is significantly higher than the 4.75% industry average.
For the fourth quarter of the fiscal year 2022, which ended December 31, IT’s revenues increased 15.2% year-over-year to $1.50 billion. During the same period, the company’s adjusted EBITDA increased 37.1% year-over-year to $421 million, while its adjusted net income increased 18.3% year-over-year to $297 million. The company’s adjusted EPS came in at $3.70, up 23.7% year-over-year.
Street expects IT’s revenue to increase 9.1% year-over-year to $1.38 billion in the fiscal first quarter (ending March 31, 2023). Its EPS is expected to increase by 4% per annum over the next five years. Moreover, IT topped the EPS and revenue estimates in each of the trailing four quarters, which is promising.
The stock has gained 29.5% over the past nine months to close the last trading session at $338.32.
IT’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
IT has an A grade for Quality and a B for Sentiment. Out of nine stocks in the A-rated Outsourcing – Tech Services industry, it is ranked #2.
Click here to see the POWR Ratings of IT (Growth, Value, Stability, and Momentum).
Extreme Networks, Inc. (EXTR)
EXTR is a software-driven networking solutions company that designs, develops, and manufactures wired and wireless network infrastructure equipment and software for network management and others.
On February 16, EXTR announced the completion of Wi-Fi 6 network deployments at five NASCAR racetracks, including Darlington Raceway, Daytona International Speedway, Martinsville Speedway, Richmond Raceway, and Talladega Superspeedway.
With five NASCAR speedways now delivering high-Capacity Wi-Fi to up to 125,000 fans simultaneously, the company could improve Raceday experiences.
In the same month, EXTR integrated network fabric capabilities into its ExtremeCloud SD-WAN platform, enabling customers to securely connect disparate environments such as the data center, campus, and branch locations from a single platform.
EXTR’s net revenue increased 13.3% year-over-year to $318.35 million in the fiscal second quarter (ended December 31, 2022). Its non-GAAP gross profit rose 13.9% from the year-ago value to $186.32 million. Also, its non-GAAP net income and non-GAAP net income per share came in at $36.48 million and $0.27, up 28.3% and 28.6% year-over-year, respectively.
The consensus EPS estimate of $0.26 for the fiscal third quarter (ending March 31, 2023) represents a 23.1% increase year-over-year. The consensus revenue estimate of $319.47 million for the current quarter indicates an 11.9% increase from the same period last year.
The company has an excellent earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing quarters.
Over the past nine months, the stock has gained 78.8% to close the last trading session at $17.90.
EXTR’s POWR Ratings reflect a promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. EXTR also has an A grade for Growth and Quality.
Among the 49 stocks in the Technology – Communication/Networking industry, it is ranked #2.
Click here to see the additional POWR Ratings for Value, Stability, Sentiment, and Momentum for EXTR.
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CSCO shares were trading at $49.41 per share on Thursday afternoon, up $0.30 (+0.61%). Year-to-date, CSCO has gained 4.54%, versus a 3.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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