Companies in the tech space have been the largest beneficiaries of the coronavirus pandemic and their stocks have been on a solid run since the market slump in March last year. The demand for tech products and services is growing and companies are increasing their tech budgets for digital transformations. However, there are certain technology stocks that have not performed as expected.
Meanwhile, talk is increasing around new federal laws to limit unhealthy business practices by big tech companies. This, coupled with the rising hopes for a quick economic recovery, is driving a big shift in investments from expensive growth stocks to quality value stocks. After all, the essential nature of technology has made tech stocks the “new defensive plays.”
We think this year could see more IT spending on digital infrastructure to make remote work more efficient and accessible. Hence, it could be wise for investors to pick undervalued stocks HP Inc. (HPQ), Lenovo Group Limited (LNVGY), LG Display Co, Ltd (LPL) and Synnex Corporation (SNX) before the market begins to recognize their value.
HP Inc. (HPQ)
HPQ delivers personal computing, workstations, thin clients, tablets, imaging and printing products, and related technologies, solutions and services for the commercial and consumer markets in the United States and internationally. The company operates in three segments – personal systems, printing, and corporate investments.
HPQ recently entered a definitive agreement to acquire HyperX, the gaming division of Kingston Technology Company, in a $425 million buyout. The acquisition supports HPQ’s strategy of driving growth in its personal systems business, where gaming and peripherals are attractive segments. HyperX’s product portfolio spans a range of gaming peripherals, including headsets, keyboards, mice, mouse pads, USB microphones, and console accessories.
HPQ reported net revenue of $15.6 billion in its fiscal first quarter, ended January 31, 2021. This represents a 7% increase year-over-year, driven by a 34% jump in consumer devices in the personal systems category. The company shipped more than 18 million units during the quarter. Its total units sold climbed 15% from the year-ago quarter. In fact, notebooks registered a 33% jump, while desktop units declined 23% year over year. Its adjusted EPS came in at $0.92, rising 41.5% from the year-ago value of $0.65.
HPQ has witnessed solid demand for personal systems since the onset of the pandemic last year, on the back of wider adoption of remote-working and online-learning structures . The company is also benefiting immensely from its cloud-based print services and solutions. However, HPQ still faces industry-wide component supply constraints, which are dampening its ability to meet demand. Nevertheless, analysts expect HPQ’s current year revenue and EPS to improve 6.9% and 43%, respectively.
With a year-to-date gain of 22.2%, HPQ closed yesterday’s trading session at $30.04. The has stock gained more than 50% in the past six months to hit its 52-week high of $30.44 this week. HPQ’s forward p/e ratio currently stands at 9.07x, which is significantly lower than the industry average 26.43x. In terms of its trailing-12-month p/s, the stock is currently trading at 0.70x, 84.1% lower than the industry average 4.43x.
HPQ’s POWR Ratings are consistent with this promising outlook. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
HPQ has an A grade for Value, and B for Momentum and Sentiment. The stock is currently ranked #1 in the 50-stock B-rated Technology – Hardware Industry.
In total, we rate HPQ on eight different levels. Beyond what we stated above, we have also given HPQ grades for Growth, Stability and Quality. Get all HPQ’s ratings here.
Lenovo Group Limited (LNVGY)
LNVGY is an investment holding company that develops, manufactures, and markets technology products and services. The company provides laptops, desktops, tablet PCs, accessories, and data center equipment, as well as IT services. As a global company, LNVGY operates in 180 markets and with more than 30 manufacturing sites around the world.
LNVGY recently announced its plan to issue Chinese Depository receipts (CDRs), for listing on the Shanghai Stock Exchange, that will represent up to 10% of its total stock. This makes LNVG the latest in a line of companies seeking mainland China listing to leverage the booming China stock market to fund their growth. Furthermore, the company has unveiled an all-new portfolio of embedded computers for the edge series. It has launched two new ThinkEdge devices to meet the demanding needs of enterprise data processing, security and scalability of edge.
In its fiscal third quarter, ended December 31, 2020, LNVGY reported its highest ever quarterly revenue of $17.25 billion, increasing 22% year-over-year. This marked its second consecutive record-breaking quarter, driven by strong growth across all core business groups and the company’s transformation businesses. In fact, pandemic-fueled buying of laptops and other personal gadgets caused revenues from the PC and smart devices segment to surge 27% year-over-year. LNVGY’s EPS came in at $3.08, rising 48.8% compared to the year-ago value of $2.07.
The new global norm of work-and-learn-from-home should continue to drive LNVGY’s sustainable growth trends, especially in device demand and cloud/infrastructure requirements. The company has further restructured its organizational design by setting up a new Solutions & Services Group to further the company’s drive to deliver incremental business across big data digital services and cloud services. In line with these developments, analysts expect LNVGY’s EPS to grow at the rate of 9.2% per annum over the next five years.
LNVGY has gained 42.3% year-to-date to close yesterday’s trading session at $26.59. The stock has nearly doubled in the past six months, hitting its 52-week high of $27.79 in late February. In terms of its forward p/e, LNVGY is currently trading at 14.42x, 45.4% lower than the industry average 26.43x. LNVGY is less expensive than the industry average in terms of trailing-12-month p/s also (0.28x versus 4.43x).
It’s no surprise that LVNGY has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. LNVGY also has an A grade for Value and Growth, and B for Momentum and Sentiment. It is ranked #3 in the Technology – Hardware industry.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the LNVGY ratings for Stability and Quality, here.
LG Display Co, Ltd (LPL)
Korea-based LPL is the world’s leading display company. It manufactures and sells thin-film transistor liquid crystal display (TFT-LCD) and organic light emitting diode (OLED) technology-based display panels in Asia, Europe and the United States. LPL’s products have diverse applications and are primarily used in televisions, computers, desktop monitors, mobile devices, and automobiles.
Tech-giant Apple (AAPL) recently unveiled its plan to launch a foldable iPhone in a year or two and LPL is reportedly developing foldable display panels for the device. AAPL is aiming for a thinner display than the foldables of its rivals and to accomplish this LPL is working on foldable OLED technology. In addition, LPL recently invested an additional $750 million at its plant in Vietnam to expand its OLED panel productions.
For the fourth quarter ended December 31, 2020, LPL generated $6.74 billion in revenues, increasing 16% year-over-year. The global work-and-learn-from trend led to robust demand for LPL’s TV and its IT products. Shipments for large-size OLED and P-OLED increased meaningfully. In fact, LPL’s panel area shipments increased by 5% sequentially and its ASP (average selling price) per square meter soared by 12% over the same period, driving its increase in revenues. Its EPS came in at $1.57, a significant improvement versus its year-ago loss of $4.59 per share.
The demand for LPL’s OLED screens is rising across multiple markets. To meet the robust demand for smartphone displays, LPL has begun full-scale production of OLED screens in its new plant in Guangzhou, China. LPL posted a net profit in the third quarter, marking its first profitable quarter in nearly two years, and it remained profitable in the fourth quarter. In line with the progress, analysts expect LPL’s current-year revenue and EPS to grow 31.3% and 254.5%, respectively, year-over-year.
With a year-to-date gain of 20.9%, LPL closed yesterday’s trading session at $10.20. The stock has gained 42.7% in the past three months and is currently trading just 9.3% below its 52-week high of $11.24. LPL’s forward p/e ratio currently stands at 12.03x, significantly lower than the industry average 26.43x. In terms of forward PEG, LPL’s 0.26x is 87.1% lower than the industry average 2.01x.
LPL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. LPL also has an A grade for Value and Growth, and B for Momentum. It is ranked #10 in the 43-stock, A-rated Technology – Electronics industry.
Click here to see the additional POWR Ratings for LPL ( Stability, Sentiment, and Quality).
Synnex Corporation (SNX)
SNX provides business process services in the United States and internationally. The company distributes peripherals and information technology systems, including system components, software, networking, communications and security equipment, consumer electronics, and complementary products. It also designs and integrates data center equipment.
On February 5, SNX entered a distribution agreement with WitFoo, the world’s most intelligent SECOPS platform fueled by big data analytics. The deal expands the distribution of the company’s flagship product, Precinct platform, into the federal government and cloud marketplaces. Furthermore, in December SNX completed the spin-off of Concentrix Corporation (CNXC), a customer engagement and business performance service major.
In its fiscal fourth quarter, ended November 30, 2020, SNX reported a record revenue of $7.4 billion, increasing 12.7% year-over-year. Technology solutions contributed $6.1 billion to its top-line, improving 13.9% from the prior year, while Concentrix business revenues climbed 7.3% year-over-year. Its adjusted operating income for technology solutions was $216.2 million, up 21.6% year-over-year. Its adjusted EPS came in at $5.21, rising 22.3% compared to the year-ago value of $4.26.
In its fourth quarter earnings call, SNX’s management noted that in the wake of its separation with CNXC, the company is now focusing solely on the market opportunities for its technology solution business through a blend of organic growth and strategic acquisitions. Wall Street analysts are confident about SNX’s prospects and expect the company’s EPS to grow at the rate of 9.2% per annum over the next five years.
SNX has gained 13.1% year-to-date to close yesterday’s trading session at $92.11. The stock has gained nearly 70% over the past six months to hit a 52-week high of $95.04 this week. In terms of its forward p/e, SNX is currently trading at 12.22x, 53.8% lower than the industry average 26.43x. SNX is less expensive than the industry in terms of trailing-12-month p/s also (0.19x versus 4.43x).
It’s no surprise that SNX has an overall rating of B, which translates to Buy in our POWR Ratings system. SNX has an A grade for Value, and B for Quality. It is ranked #16 of 80 stocks in the Technology – Services industry.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the SNX ratings for Growth, Momentum, Stability and Sentiment, here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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HPQ shares were trading at $29.92 per share on Wednesday afternoon, down $0.12 (-0.40%). Year-to-date, HPQ has gained 21.68%, versus a 2.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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