Since the March low in the stock market, tech stocks have been the clear leaders. For a couple of weeks, it looked like there could be a rotation from small-caps to tech. However, in the past few days, tech stocks have been outperforming with many names breaking out to new, all-time highs.
So far this week, the Powershares Nasdaq 100 ETF (QQQ) is up 3%, while the iShares Russell 2000 ETF (IWM) is down 1%. This is despite Congress warning that Big Tech needs to be broken up with a 450-page report from the House Judiciary Committee which blistered their business practices and criticized their monopoly-like behavior. However, the market is more focused on these companies’ strong sales and earnings growth, and Congress’ inability to reach an agreement on fiscal stimulus.
So, investors should keep their focus on technology. Given the rich valuations in the sector, they may want to consider Infosys Limited (INFY), SunPower Corporation (SPWR), and Avaya Holdings Corporation (AVYA). Each of these stocks is attractively priced with a unique business model and is strategically positioned for more growth.
Infosys Limited (INFY)
Based in India, INFY provides consulting, technology, outsourcing, and next-generation digital services in North America, Europe, and other countries. Besides, INFY is prominently involved in disruptive technologies like Blockchain, Internet of Things, Artificial Intelligence, and Data Analytics.
Yesterday, INFY completed the acquisition of Kaleidoscope Innovation with a focus on driving innovation and digital expertise across the healthcare segment. The tech giant now wants to revolutionize patient care, treatment, diagnostics, and consumer health through this collaboration. The healthcare industry in the United States is growing exponentially, and acquiring Kaleidoscope is an apt move by INFY.
In the first quarter ended June 2020, INFY saw a 0.3% year-over-year decline in revenue to $3.12 billion. However, in constant currency terms, the revenue climbed 1.5% on the back of large deal acquisitions, rapid expansion in digital services, and strong demand for disruptive technologies.
INFY’s EPS for the first quarter stood at $0.13, which is 3.8% higher than that of the previous period. Street estimates the EPS for the second quarter to be $0.14, which indicates a year-over-year increase of 7.7%. Meanwhile, the revenue is expected to rise by 0.90% to $3.24 billion, on the back of digital revenue growth.
The stock has gained 50.7% year-to-date to close yesterday’s session at $15.55. INFY saw a sudden jump in its price in mid-September after it announced the acquisition of GuideVision, a Czech Republic-based management consultancy firm. This collaboration would be a catalyst for INFY to strengthen its Infosys Cobalt cloud services. The stock has gained nearly 83% in the last six months.
How does INFY stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
A for Overall POWR Rating
You can’t ask for better. The stock is also ranked #1 out of 14 stocks in the Outsourcing – Tech Services industry.
SunPower Corporation (SPWR)
SPWR is a leading company in the solar energy space. It has been designing, manufacturing, and delivering solar power systems to commercial, residential, utility customers as well as the government for the past three decades. Its crystalline silicon photovoltaic cells and solar panels, invented at Stanford University, are known to have the highest efficiency and reliability. SPWR operates globally and delivers solar panels to customers across North America, Europe, Australia, Africa, and Asia.
In September, SPWR announced that it has attained financing commitments from Hannon Armstrong Sustainable Infrastructure Capital, Inc. and other capital providers for its residential solar lease program. The funding will also be available for its new solar plus storage program, SunPower Equinox® system with SunVault™ storage. SPWR expects rising customer demand through mid-2021 and considers this new arrangement crucial in financing its operations. The company believes that this innovative financing provision would also result in lower financing costs.
In the second quarter, SPWR’s revenue came in at $352.9 million and exceeded the consensus estimate by 5.1%. The company posted a loss of $0.22 per share, which was narrower than the $0.39 loss estimated by the street. SPWR also posted $30 million in positive cash flow and launched new products despite the Covid-19 pandemic.
The loss per share consensus for the quarter ended September is estimated to narrow 171.4% to $0.05. The street also estimates the revenue for the third quarter to drop 50.9% to $235.6 million. SPWR has a robust balance sheet, strong US channels, and sees high demand for solar energy. The company has more than 50,000 systems installed and over 45,000 homes in backlog.
SPWR closed yesterday’s trading session at $16.52, gaining nearly 118% year-to-date. Industries and individuals are turning to clean energy options due to climate change concerns. The global solar energy market is set to reach $223.3 billion by 2026 at a CAGR of 20.5%. Even the Energy Information Administration (EIA) released an upbeat report on the solar power progress in September. The stock has more than doubled in the last six months and is trading 10.5% below its 52-week high of $18.25.
SPWR’s strong fundamentals are reflected in its POWR Ratings, it has a “Buy” rating with an “A” in Trade Grade, and a “B” in Buy & Hold Grade, Peer Grade, and Industry Rank. Within the Solar industry, it’s ranked #8 out of 15 stocks.
Avaya Holdings Corp. (AVYA)
AVYA is a market leader in unified communications and networking services. It is committed to helping enterprises and mid-market businesses through seamless digital communications. Apart from communication software, AVYA offers contact centers, real-time video, and collaboration services.
Earlier this month, AVYA announced that it is collaborating with NVIDIA to enhance the audio-visual impact of its Avaya Spaces™ app by integrating the latter’s powerful cloud AI solutions. Avaya Spaces, an end-to-end video collaboration app aimed at the digital workplace, has garnered immense response amid the COVID-19 pandemic. As businesses, schools, and government organizations are transitioning into the virtual space, AVYA is all set to ride a strong growth trajectory. To address the rapid rise in online collaborations and meetings, utilizing cloud-based AI solutions will be a cost-effective mode for AVYA to scale up.
The revenue for the third quarter ended June edged 0.55% higher year-over-year to $721 million. The revenue share of AVYA’s Software and services segment stood at 89% and depicts strong demand from enterprise clients who are migrating to the cloud. AVYA’s OneCloud Subscription TCV climbed to approximately $130 million during the quarter.
The company’s EPS came in at $0.08 compared to a $5.70 loss posted in the prior-year period. For the fourth quarter, the consensus revenue estimate of $733.55 million indicates a 1.0% increase year-over-year, while EPS is expected to rise 69% to $1.20.
The stock has gained 37.5% year-to-date to close yesterday’s trading session at $18.57. The stock has increased by 95% in the past six months. AVYA stock has been witnessing strong momentum amid the pandemic as an increased number of businesses are turning to digital workspaces. Virtual communication is also seeing growing demand from gig economy workers and educational institutions.
AVYA is rated a “Strong Buy” in our POWR Ratings system, consistent with the strength in the telecommunications business model. It also has an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade. It is also ranked #2 out of 53 stocks in the Technology – Communication/Networking industry.
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INFY shares . Year-to-date, INFY has gained 54.05%, versus a 10.34% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More...
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