The technology industry has been experiencing a solid year backed by widespread 5G deployment, rapid adoption of artificial intelligence, and accelerating digital transformation. In addition, as organizations worldwide adopt hybrid working models and boost their cloud-driven capabilities, the tech industry has been gaining steam.
Investor optimism over the tech industry’s prospects is evident in the iShares Global Tech ETF’s (IXN) 12.1% returns over the past three months versus the SPDR S&P 500 ETF Trust’s (SPY) 7.7% gains. Substantial IT spending, growing demand for semiconductors, and increasing dependency on advanced technology solutions should bolster the tech industry’s growth.
Given this backdrop, we think it could be wise to bet on quality stocks Telefonaktiebolaget LM Ericsson (ERIC), HP Inc. (HPQ), ASE Technology Holding Co., Ltd. (ASX). They each look significantly undervalued at their current price levels.
Telefonaktiebolaget LM Ericsson (ERIC)
Sweden-based ERIC is one of the leading providers of information and communication technology (ICT) and software solutions to the telecommunication and other sectors. The company’s Emerging Business and Other segment provides Internet of Things, iconectiv, Cradlepoint, Red Bee Media, and WAN 4G and 5G enterprise solutions. It also offers cloud core, cloud communication, and cloud infrastructure services to its customers.
This month, ERIC expanded its portfolio of 5G radios with three new offerings that will accelerate 5G deployments in urban environments. As a part of Ericsson Street Solutions, these radios will enable communications service providers to provide 5G services across all urban hotspots. With this expansion, the company can maximize its 5G user experience and offer better network performance.
In July, ERIC entered a $8.3 billion multi-year agreement with Verizon. Under this agreement, the company will offer its industry-leading 5G solutions to accelerate the deployment of Verizon’s next-generation 5G network across the United States. This should allow ERIC to serve U.S. consumers, enterprises, and the public sector with the new 5G experience and drive innovation.
ERIC’s net income increased 51% from the prior-year quarter to SEK3.9 billion ($0.45 billion) in the second quarter, ended June 30, 2021. The company’s gross margin was 43.4% for the quarter, compared to 37.6% in the prior-year period. ERIC’s EBIT increased 51% from its year-ago value to SEK5.8 billion ($ 671 million). Also, its EPS rose 49% year-over-year to $1.10 over this period.
Analysts expect ERIC’s revenue for its fiscal year 2022 to be $28.34 billion, representing a 4.40% growth year-over-year. The company’s EPS is expected to grow 18.6% next year. In terms of forward EV/Sales, ERIC is currently trading at 1.41x, which is 65.7% lower than the 4.11x industry average. In terms of its forward Price/Sales, the stock is currently trading at 1.48x, which is 64.5% lower than the 4.17x industry average. ERIC has gained 3% over the past month.
ERIC’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has an A grade for Value, and a B grade for Stability. We’ve also graded ERIC for Growth, Sentiment, Momentum, and Quality. Click here to access all ERIC’s ratings.
ERIC is ranked #20 of 55 stocks in the B-rated Technology-Communication/Networking industry.
HP Inc. (HPQ)
Formerly known as Hewlett-Packard Company, HPQ in Palo Alto, Calif., develops and provides various hardware components and software and related services to consumers, small- and medium-sized businesses, and large enterprises in the United States and internationally. Personal Systems; Printings; and Corporate investments are the segments through which the company operates.
HPQ expanded its Chrome OS ecosystem this month by unveiling the HP Chromebook x2 11 and the HP Chromebase 21.5-inch All-in-One Desktop. In addition, the company introduced the new Works With Chromebook certified HP M24fd USB-C Monitor to offer versatility and mobility to customers and provide a seamless experience.
For the third quarter, ended July 31, 2021, HPQ’s net revenue increased 7 % year-over-year to $15.29 billion. The company’s earnings from operations increased 77.3% from its year-ago value to $1.38 billion. Also, HPQ’s net earnings increased 51% from the prior-year quarter to $1.11 billion, while its EPS rose 76.9% year-over-year to $0.92 for the quarter.
HPQ’s revenue is expected to increase 10.2% year-over-year to $62.39 billion in its fiscal year 2021. The company has an impressive earnings history; it beat the consensus EPS estimates in each of the four trailing quarters. The company’s EPS is expected to increase 61.8% in the current year. In terms of forward EV/Sales, HPQ is currently trading at 0.62x, which is 85% lower than the 4.11x industry average. In terms of its forward Price/Sales, the stock is currently trading at 0.57x, which is 86.1% lower than the 4.13x industry average. The stock has gained 3% in rice over the past month and 20.9% year-to-date.
HPQ’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has an A grade for Value, and a B for Quality.
In addition to the POWR Rating grades we’ve just highlighted, one can see HPQ’s ratings for Growth, Stability, Momentum, and Sentiment here. The stock is ranked #9 of 45 stocks in the B-rated Technology – Hardware industry.
ASE Technology Holding Co., Ltd. (ASX)
ASX is a Taiwan-based provider of independent semiconductor, electronic manufacturing, packaging, and testing services in the United States, Europe, Asia, and internationally. In addition, the company offers IC wire bonding packages, interconnect materials, system-in-package products, and other semiconductor test-related services.
ASX’s total net revenue increased 18% year-over-year to NT$126.93 billion ($4.57billion) for the second quarter ended June 30, 2021. The company’s gross profit increased 31.9% from its year-ago value to NT$24.80 billion ($892.24 million). Also, ASX’s operating income grew 56.3% from the prior-year quarter to NT$13.17 billion ($ 473.89 million).
For its fiscal year 2021, analysts expect ASX’s revenue to be $19.88 billion, representing 22.7% year-over-year growth. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Its EPS is expected to increase 61.4% year-over-year to $0.71 in the current year.
In terms of forward EV/EBITDA, ASX is currently trading at 6.41x, which is 61.6% lower than the 16.67x industry average. In terms of its forward Price/Sales, the stock is currently trading at 0.99x, which is 76% lower than the 4.13x industry average. ASX’s stock price has surged to 5.3% over the past month and 16.5% over the past three months.
It’s no surprise that ASX has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has an A grade for Value, and a B for Momentum and Sentiment.
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ERIC shares rose $0.05 (+0.42%) in premarket trading Tuesday. Year-to-date, ERIC has gained 0.41%, versus a 21.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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