The technology sector has been one of the biggest beneficiaries of the COVID-19 pandemic-driven changes in consumer and business behavior. People and organizations worldwide have been able to remain functional thanks to cloud-based working, learning, entertainment and shopping platforms. The reliance on this kind of technology has reached record levels over the past year, helping most technology stocks skyrocket. This is evidenced by the Technology Select Sector SPDR ETF’s (XLK) 42% gains over the past year.
Market observers don’t expect the dependence on technology to decline even in the post-pandemic world. This reality should help tech stocks keep rallying. The complementary semiconductor industry is expected to grow by 5% this year, according to S&P Global.
Be that as it may, the valuations of big tech stocks have become stretched and investors are increasingly skeptical about those stocks’ gains against a backdrop of a slow recovering economy. So, it could be risky for investors to take positions in the top-performing tech stocks now. Moreover, the big techs, which have been driving the broader market growth, are currently under federal scrutiny for antitrust practices.
Thus, we think it wise to consider investing in fundamentally strong tech-oriented stocks Intel Corporation (INTC), Dell Technologies Inc. (DELL) and ASE Technology Holding Co., Ltd. (ASX), which are currently trading at discounts to their peers.
Intel Corporation (INTC)
INTC is a leading semiconductor chip manufacturer that markets essential semiconductor technologies for the cloud and smart and connected devices worldwide. The company operates through five segments–PC Client Group, Data Center Group, Internet of Things Group, Mobile and Communications Group, Software and Services, and Others.
In terms of its non-GAAP forward p/e, INTC is currently trading at 13.24x, 49.9% below the industry average 26.43x. In terms of forward-12-month p/s, the stock is currently trading at 3.50x, which is 15.6% lower than the industry average 4.15x.
INTC has undergone several leadership changes over the last month. The company has appointed Sunil Shenoy as its Vice President of Design Engineering Group and Pat Gelsinger as the CEO. The company is seeking to boost its position in the chip making arena by leveraging new leaders with decades of experience.
Earlier in January, INTC launched its 11th Gen Intel Core vPro platform and Intel Evo vPro platform that is expected to deliver the highest performance and most comprehensive hardware-based security. It also introduced a new N-series 10-nanometer Intel Pentium Silver and Intel Celeron processors.
Last month , Mobileye, an Intel Company, Transdev Autonomous Transport System (ATS), and Lohr Group forged a strategic collaboration to develop and deploy autonomous shuttles. This collaboration with Transdev ATS and Lohr Group will enable the company to deploy autonomous vehicles in public transportation networks at scale. This will expand INTC’s global footprint as the autonomous vehicle (AV) technology partner of choice for pioneers in the transportation industry.
INTC’s non-GAAP revenues have increased 8% year-to-year to $77.90 billion in the fiscal year ended December 26, 2020. Its non-GAAP net income has risen 3% from the prior year value to $22.40 billion, while its non-GAAP EPS increased 8.8% to $5.30. Its non-GAAP free cash flow has increased 25% year-to-year to $21.10 billion.
Analysts expect INTC’s EPS to rise at a rate of 5.4% per annum over the next five years. The company has an impressive earnings surprise history; it surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 17.2% over the past six months.
INTC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
INTC has an A grade for Value and Quality and a B for Momentum and Sentiment. It is currently ranked #15 of 99 stocks in the Semiconductor & Wireless Chip Industry. This industry is rated B.
Beyond what we’ve stated above, we have also given INTC grades for Growth and Stability. Get all the INTC ratings here.
Dell Technologies Inc. (DELL)
DELL is a leading global end-to-end technology provider, with a comprehensive portfolio of IT hardware, software, and services solutions spanning both traditional infrastructure and emerging multi-cloud technologies. It operates through three segments—an Infrastructure Solutions Group (ISG), Client Solutions Group (CSG), and VMware. The company operates globally across key functional areas including technology and product development, marketing, go-to-market, and global services.
DELL’s non-GAAP forward p/e of 10.72x is 59.4% lower than the industry average 26.43x. In terms of forward-12-month price/sales, the stock is currently trading at 0.64x, 84.7% lower than the industry average 4.15x.
In October, DELL announced its Project APEX, which will simplify how its customers can consume IT-as-a-Service across storage, servers, networking, hyper-converged infrastructure, PCs and broader solutions. These solutions should help businesses to buy and implement IT with a simple, consistent cloud experience across DELL’s extensive product portfolio.
Last September, DELL closed the sale of RSA Security for a total cash consideration of approximately $2.082 billion. The divestiture is expected to bring simplicity in the company’s product portfolio and corporate structure.
DELL’s net revenue has increased 8.7% year-over-year to $26.11 billion in the fourth quarter, ended January 29. Its operating income has risen 203.6% from its year-ago value to $2.18 billion, yielding an operating margin of 8%, up 500 basis points over the same period. Its EBITDA has increased 57.6% year-over-year to $3.55 billion, while its non-GAAP EPS has improved 35.9% to $2.06.
Analysts expect DELL’s revenues to grow 12.2% year-over-year to $23.39 billion in the current quarter (ending April 30, 2021). A consensus EPS estimate of $1.58 for the first quarter represents a 17.9% improvement from its year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 20.8% over the past six months.
It’s no surprise that DELL has an overall rating of B, which equates to a Buy in our POWR Ratings system. DELL has a B grade for Value and Momentum, and an A for Growth. In the 50-stock, B-rated Technology – Hardware Industry, it is ranked #10.
Click here to see the additional POWR Ratings for DELL(Stability, Sentiment and Quality).
ASE Technology Holding Co., Ltd. (ASX)
Based in Taiwan, ASX is the leading provider of semiconductor packaging and testing services. The Company develops and offers complete turnkey solutions covering front-end engineering test, wafer probing and final test. It also offers IC packaging, materials and electronic manufacturing services through USI with superior technologies, breakthrough innovations, and advanced development programs. Its other services include real estate development, construction, home sales property management and shopping mall rental.
ASE stock has gained 81.4% over the past six months. In terms of its non-GAAP forward p/e, ASX is currently trading at 13.96x, 47.2% below the industry average 26.43x.
On December 3, Universal Scientific Industrial Co., Ltd. (USI), an ASX subsidiary, completed the acquisition of 100% shares of Asteelflash Group through the acquisition of Asteelflash Group’s parent company, Financière AFG S.A.S. (FAFG) for approximately $421.48 million. The combined company’s customer portfolio expanded global footprint and technological capabilities will allow for ASX’s geographical market expansion along with broadened service offerings.
Also last December, ASX, Chunghwa Telecom and Qualcomm Technologies unveiled the world’s first smart factory powered by a private 5G mmWave network located in Taiwan. This development should allow the company to expand its operational scope in line with the fast-growing 5G industry. More importantly, the development should serve to boost Taiwan’s leadership in 5G technology deployment for smart manufacturing.
ASX’s total net revenues have increased 28.3% year-over-year to NT$148.88 billion in the fourth quarter ended, December 31, 2020. Its gross profit has risen 17.4% from the year-ago value to NT$23.30 billion, while its EBITDA has increased 15.9% to NT$26.13 billion over the same period. Its EPS has improved 66.3% year-over-year to US$0.16. The company’s unaudited net revenues for January 2021 have increased 30.3% year-over-year to NT$40.85 billion.
Analysts expect ASX’s revenues to rise 23.1% year-to-year to $16.47 billion in the fiscal 2021, ending December 31. A consensus EPS estimate of $0.35 for the current year represents a 40% improvement from the previous year. The company has an impressive earnings surprise history; it surpassed the Street’s EPS estimates in each of the trailing four quarters.
ASX has an overall rating of B, which translates to Buy in our ratings system. ASX has an A grade for Sentiment and Value, and a B for Momentum. It is currently ranked #35 of 99 stocks in the Semiconductor & Wireless Chip Industry.
The stock has also been given grades for Stability, Quality, and Growth. Get all ASX’s ratings here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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INTC shares were trading at $60.24 per share on Wednesday afternoon, down $1.00 (-1.63%). Year-to-date, INTC has gained 22.37%, versus a 2.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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