Even though recessionary concerns are clouding investor sentiments, the tech sector witnessed a strong recovery in Tuesday’s trading session. The tech-heavy Nasdaq Composite posted a strong rebound, gaining 1.8% or 194.39 points intraday.
The tech sector has recently made headlines for its layoffs and hiring freezes. However, according to a CNBC Technology Executive Council survey, hiring is not likely to slow down, and the labor market tumult could provide an opportunity to hire top talent.
As the pandemic brought remote work options into prominence, the technology sector experienced a sprawl and is no longer confined to certain places. Tech expansion into new areas provides access to a new talent pool, which is expected to be opportunistic for the sector.
Moreover, some analysts believe that profitable names in the tech sector might weather an economic storm and outperform the broader market if the economy is dragged into a recession. On top of it, a tech sell-off has caused several quality stocks to trade at attractive valuations.
Given this backdrop, we think tech stocks Information Services Group, Inc. (III), Vtech Holdings Limited (VTKLY), Computer Task Group, Incorporated (CTG), Extreme Networks, Inc. (EXTR), and Celestica Inc. (CLS), which are currently trading under $10, might be solid buys this month.
Information Services Group, Inc. (III)
III is a technology research and advisory company operating in the Americas, Europe, and the Asia-Pacific. The company’s offerings include digital transformation services, sourcing advisory, market intelligence, technology research, and analysis services.
In June, III announced that it had been awarded a three-year $10 million agreement by the Italian government to help manage and oversee the government’s digital transformation program. “This is a significant win for ISG, underscoring our strong track record of supporting digital modernization efforts for our clients,” said Michael P. Connors, chairman, and CEO of III.
In the same month, the company announced the launch of its new advisory business that is expected to help its clients understand the technology and business implications of Web3 and the metaverse. The new business might be beneficial for III.
III’s revenues increased 9% year-over-year to $ 72.56 million in the first quarter ended March 31. Its operating income grew 54.2% from the year-ago value to $7.73 million, while its adjusted net income improved 16.8% year-over-year to $6.38 million. The company’s adjusted EPS increased 20% from its year-ago value to $0.12.
The consensus revenue estimate of $317.44 million for the fiscal year 2023 indicates a 7.3% increase year-over-year. The consensus EPS estimate for the same year of $0.49 reflects a rise of 15.3% from the prior-year periods. Moreover, III has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 15% over the past year and 6.8% over the last month to close its last trading session at $6.91.
III’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
III is rated an A in Sentiment, and a B in Value and Quality. Within the Technology – Services industry, it is ranked #5 of 81 stocks. To see additional POWR Ratings for Growth, Momentum, and Stability for III, click here.
Vtech Holdings Limited (VTKLY)
VTKLY designs, manufactures, and distributes electronic products worldwide. Its offerings include electronic learning toys for infancy, toddler, and preschool under the Vtech and LeapFrog learning programs. The company is headquartered in Tai Po, Hong Kong.
For the fiscal year ended March 31, VTKLY’s revenue was $2.37 billion. Its gross profit came in at $669.10 million. The company’s operating profit was $203.80 million, while its EPS stood at 68.50 cents.
Street revenue estimate of $2.51 billion for the current fiscal year (ending March 2023) indicates a 5.7% year-over-year improvement.
VTKLY’s stock has declined marginally over the past three months to close its last trading session at $7.46.
VTKLY’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 POWR Rating system.
VTKLY has an A grade for Stability and a B for Value and Quality. In the 45-stock Technology – Hardware industry, it is ranked #3. Click here to see the additional POWR Ratings for VTKLY (Growth, Sentiment, and Momentum).
Computer Task Group, Incorporated (CTG)
CTG offers information and technology services and operates in North America, South America, Western Europe, and India. The company operates through three segments: North America IT Solutions and Services; Europe IT Solutions and Services; and Non-Strategic Technology Services.
In the first quarter ended April 1, CTG’s non-GAAP operating income increased 26.2% year-over-year to $3.46 million, while its non-GAAP net income came in at $2.44 million, up 21.6% year-over-year. The company’s non-GAAP EPS improved 23.1% from the prior-year period to $0.16.
Analysts expect CTG’s revenue for the quarter ended June 2022 to be $92.50 million, indicating a 0.4% year-over-year growth. The company’s EPS is expected to increase 30.8% from the prior-year period to $0.17 for the same quarter.
CTG has declined 3.5% intraday to close its last trading session at $8.10.
It is no surprise that CTG has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock has an A grade for Value, and a B for Stability, Sentiment, and Quality. It is ranked #4 in the Technology – Services industry.
Beyond what we’ve stated above, we have also given CTG grades for Growth and Momentum. Get all the CTG ratings here.
Extreme Networks, Inc. (EXTR)
EXTR operates as a software-driven networking solutions provider that designs, develops, and manufactures wired and wireless network infrastructure equipment and engages in software development.
In June, the company introduced a suite of new solutions, extending its ExtremeCloud portfolio to include new SD-WAN and AIOps with digital twin capabilities. The new suite of solutions might add significantly to the company’s revenue stream.
In May, the company announced an increase in its share repurchase authorization to $200 million over a three-year period beginning in the company’s upcoming fiscal year starting from July 1. This might bolster the company’s shareholder returns.
In the third fiscal quarter ended March 31, EXTR’s total net revenue came in at $285.51 million, up 12.7% year-over-year. Non-GAAP net income and non-GAAP net income per share rose 32.6% and 31.3% from the prior-year period to $27.42 million and $0.21.
Analysts expect EXTR’s revenue for the fiscal year 2022 (ending June 2022) to be $1.10 billion, indicating an increase of 9.3% year-over-year. For the same year, Street expects EPS to improve 35.8% from the prior year to $0.77. EXTR has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
EXTR has gained marginally intraday to close its last trading session at $9.00.
It is no surprise that EXTR has an overall A rating, which translates to Strong Buy in our POWR Rating system.
The stock has a B grade for Growth, Value, and Quality. It is ranked #1 out of the 55 stocks in the Technology – Communication/Networking industry.
Beyond what we’ve stated above, we have also given EXTR grades for Momentum, Stability, and Sentiment. Get all the EXTR ratings here.
Celestica Inc. (CLS)
CLS, headquartered in Toronto, Canada, offers a hardware platform and supply chain solutions. It operates through two broad segments: Advanced Technology Solutions; and Connectivity & Cloud Solutions. The company serves aerospace and defense, industrial, energy, and health-tech industries.
In March, Urbx Logistics, an on-demand robotics fulfillment system for last-mile delivery, announced that it had selected CLS to provide engineering and manufacturing solutions as part of the mass-market introduction and distribution of the Urbx system. This might benefit the company.
CLS’ revenue increased 26.9% year-over-year to $1.57 billion in the first quarter ended March 31. Its non-IFRS adjusted gross profit improved 29.8% from the prior-year period to $138.10 million. The company’s non-IFRS adjusted EPS increased 77.3% from its year-ago value to $0.39. Non-IFRS adjusted net earnings improved 73.4% from the same period last year to $48.20 million.
The consensus revenue estimate of $1.65 billion for the fiscal second quarter (ended June 2022) reflects a 16.5% increase from the same period last year. The consensus EPS estimate for the same period of $0.42 indicates a 40.5% improvement year-over-year. The company has surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained 16.9% over the past year to close its last trading session at $9.43.
CLS has an overall A grade, equating to Strong Buy in our proprietary rating system. The stock is rated an A in Growth and a B in Value and Sentiment. Within the Technology – Services industry, it is ranked #2.
To see additional POWR Ratings for Momentum, Stability, and Quality for CLS, click here.
Want More Great Investing Ideas?
III shares were trading at $6.86 per share on Wednesday afternoon, down $0.05 (-0.72%). Year-to-date, III has declined -9.05%, versus a -18.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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