With the ongoing global economic recovery, investors have been rotating away from expensive tech stocks to stocks that are well-positioned to capitalize on the re-engagement of economic activities. This is evident in the Technology Select Sector SPDR Fund’s (XLK) 7.7% returns so far this year versus SPDR S&P 500 ETF Trust ETF’s (SPY) 12.9% gains.
However, the tech industry has immense growth potential given continuous technological advancements and increasing adoption of advanced technologies, such as artificial intelligence (AI) and machine learning (ML), by almost all industries. The tech industry is expected to hit a $5 trillion market value by the end of this year. So, we think it could be wise to invest in mid-cap stocks from the tech space because they might hold attractive growth potential, like small-cap stocks, amid the economic recovery, while offering a level of stability similar to large-cap stocks.
We believe mid-cap companies Littelfuse, Inc. (LFUS), Kulicke and Soffa Industries, Inc. (KLIC), and Cornerstone OnDemand, Inc. (CSOD) have sufficiently solid financials to capitalize on the industry’s growth and the economic recovery. So, shares of these companies could be solid bets now.
Littelfuse, Inc. (LFUS)
Industrial technology manufacturing company LFUS manufactures and sells circuit protection, power control, and sensing products. The company operates through three segments: electronics, automotive, and industrial. Its product portfolio includes fuses, semiconductors, polymers, ceramics, relays and sensors. It has a $6.42 billion market capitalization.
The company’s net sales came in at $463.79 million for fiscal first quarter, ended March 27, 2021, which represents a 34% year-over-year increase. LFUS’ net income increased 134.2% year-over-year to $57.71 million. Its non-GAAP EPS came in at $2.67, up 107% year-over-year. LFUS’ revenue has grown at a 4.9% CAGR over the past three years, while its EPS has grown at a 9.9% CAGR.
Analysts expect LFUS’ EPS and revenue to increase 212.7% and 68.9%, respectively, year-over-year to $2.22 and $463.32 million for the current quarter, ending June 30, 2021. It surpassed consensus EPS estimates in each of the trailing four quarters.
LFUS completed the acquisition of Hartland Controls in January 2021. Hartland Controls is a manufacturer and leading supplier of electrical components used primarily in heating, ventilation, air conditioning, and refrigeration (HVAC/R) and other industrial and control systems applications. This merger is expected to strengthen LFUS’ business capabilities. The stock has gained 41.4% over the past year to close yesterday’s trading session at $257.17.
It’s no surprise that LFUS has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Growth, Stability and Sentiment. Click here to see LFUS’ ratings for Momentum, Quality and Value as well.
LFUS is ranked #24 of 45 stocks in the A-rated Industrial-Manufacturing industry.
Kulicke and Soffa Industries, Inc. (KLIC)
Headquartered in Singapore, KLIC designs, manufactures and sells capital equipment and expendable tools used to assemble semiconductor devices, such as integrated circuits (ICs). It has a $3.30 billion market capitalization. The company operates through two segments: capital equipment, and aftermarket products and services (APS).
KLIC’s total revenue increased 125.7% year-over-year to $340.16 million for its fiscal second quarter ended April 3. Its non-GAAP net income came in at $79.45 million, up 367.1% from the year-ago period. KLIC’s non-GAAP EPS was $1.26, up 384.6% year-over-year. The company’s revenue has grown at an 11.3% CAGR over the past five years, while its EPS has grown at a 57.1% CAGR over the past three years.
KLIC’s EPS is expected to increase 547.6% year-over-year to $1.36 for the current quarter, ending June 30, 2021. It surpassed consensus EPS estimates in three of the trailing four quarters. Its annual revenue is expected to increase 119.2% year-over-year to $1.37 billion in 2021.
On February 4, 2021, KLIC acquired a 100% equity stake in Uniqarta, Inc., which includes Uniqarta’s patent portfolio and other intellectual property rights. The acquisition is expected to help expand the company’s product portfolio in the mini and micro-LED technology segment. The stock has soared 128.7% over the past year to close yesterday’s trading session at $55.67.
KLIC’s POWR Ratings reflects this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. It has an A grade for Growth and a B grade for Value, Momentum and Quality. Click here to see the additional ratings for KLIC (Sentiment and Stability).
KLIC is ranked #8 of 98 stocks in the B-rated Semiconductor & Wireless Chip industry.
(Note that KLIC is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.)
Cornerstone OnDemand, Inc. (CSOD)
With a $327 billion market capitalization, CSOD is a cloud computing company providing learning and human capital management software and delivering Software-as-a-Service (SaaS) solutions. It serves several industries, including financial services, healthcare, pharmaceuticals, insurance, manufacturing, retail, and technology industries.
For the first quarter ended March 31, 2021, CSOD’s total revenue came in at $209.27 million, which represents a 39.4% year-over year rise. The company’s gross profit increased 37.4% from the prior-year quarter to $148.74 million. It’s operating income came in at $9.05 million compared to a $2.74 million loss in the prior-year quarter. CSOD’s revenue has grown at a 16.75% CAGR over the past three years, while its total assets have grown at a 28.7% CAGR.
Analysts expect CSOD’s EPS and revenue to increase 32% and 15.7%, respectively, year-over-year to $2.35 and $856.96 million in 2021. It surpassed the Street’s EPS estimates in each of the trailing four quarters.
On April 36, CSOD completed the repricing of its senior secured term loan facility. The company’s CFO, Chirag Shah said, “At current LIBOR and debt levels, we expect the improved pricing to save approximately $9 million of annual cash interest expense and enhance our ability to invest in key strategic priorities, including growth initiatives and further deleveraging.” The stock has rallied 40.6% over the past nine months to close yesterday’s trading session at $49.41.
CSOD’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has a B grade for Growth and Value also. We’ve also rated CSOD for Sentiment, Stability, Momentum and Quality. Click here to access all CSOD ratings.
CSOD is ranked #23 of 125 stocks in the Software-Application industry.
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LFUS shares were trading at $259.25 per share on Tuesday afternoon, up $2.08 (+0.81%). Year-to-date, LFUS has gained 2.17%, versus a 13.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...
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