The technology industry has been one of the biggest gainers over the past year, driving the stock markets amid an economic recession. The popularity of tech companies can in no small measure be attributed to the surging demand their products and services experienced last year as remote lifestyles took hold amid the coronavirus pandemic.
Technology stocks’ outperformance of the broader market over the past year is evidenced by the Technology Select Sector SPDR ETF’s (XLK) 37.5% gains versus the SPDR S&P 500 ETF Trust’s (SPY) 16.9% returns over this period. As a result, major tech giants are now trading at lofty valuations. This disconnect between the stock market and the real economy has raised concerns regarding a potential stock market bubble.
While the coronavirus vaccination process has begun worldwide, vaccinating entire populations is challenging and may take a long time. Moreover, with a remote working culture expected to continue even in the post-vaccine world, the tech industry’s growth should continue.
Because some of the tech giants are currently under federal scrutiny for antitrust allegations and monopolistic behavior, and because most of the big tech players are trading at high valuations, we think it could be wise to bet on stocks in the tech space that are currently trading at reasonable valuations.
Sony Corporation (SNE), HP Inc. (HPQ) and Amkor Technology, Inc. (AMKR) have delivered impressive returns over the past quarters, but are still trading at P/E ratios below 15. Given the favorable industry backdrop and their global market presence, these stocks appear to have plenty of upside.
Sony Corporation (SNE)
SNE is one of the largest creative entertainment companies in the world. It was the first Japanese company to be listed on the New York Stock Exchange 50 years ago. The company develops and markets electronic equipment, instruments, and devices for the consumer, professional, and industrial markets worldwide.
SNE’s trailing-12-month GAAP P/E of 14.01x is 44.6% lower than the industry average of 25,28x. In terms of trailing-12-month price/cash flow, the stock is currently trading at 8.23x, which is 31.6% lower than the industry average of 12.04x.
On December 9, Sony Pictures Entertainment Inc. (SPE), a wholly owned subsidiary of SNE, announced that it had agreed to acquire 100% of Ellation Holdings, Inc., which operates the anime business Crunchyroll, for a total purchase price of $1.175 billion. Crunchyroll is a U.S. distributor and, publisher focused on streaming anime, manga, and dorama. It serves around 90 million registered users in more than 200 countries. The acquisition provides SNE with an opportunity to broaden its content partners’ distribution and expand fan-centric offerings to consumers.
Earlier this month, Sony Electronics Inc. introduced new BRAVIA XR 8K LED, 4K OLED and 4K LED television models powered by the Cognitive Processor XR. This product lineup is expected to take the industry to the next level by delivering an immersive cinematic experience.
SNE’s operating income has risen 13.9% year-over-year to ¥317.76 billion in the fiscal second quarter ended September 30, 2020. Its EBIT grew 14.3% from the same period last year to ¥299.60 billion, while net income increased 146.5% from the year-ago value to ¥374.34.
Analysts expect SNE’s revenues to rise 21.2% year-over-year to $19.08 billion in the current quarter ending March 31, 2021. A consensus EPS estimate of $0.29 for the current quarter represents a 190% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 29.9% over the past six months.
How does SNE stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Industry Rank
A for Overall POWR Rating
The stock is also ranked #1 of 23 stocks in the Entertainment – Media Producers industry.
HP Inc. (HPQ)
Based in Palo Alto, California, HPQ is a printing and personal systems technology company that offers personal computing and access devices, imaging and printing products and related technologies through its three segments: Personal Systems, Printing. and Corporate Investments.
HPQ’s trailing-12-month non-GAAP P/E of 11.02x is 62.5% lower than the industry average of 29.36x. In terms of forward non-GAAP P/E, the stock is currently trading at 9.46x, which is 67.6% lower than the industry average of 29.17x.
In late October, HPQ made significant advancements in the management and automation of complex 3D printing workflows and large-scale additive manufacturing fleets. It unveiled a new software solution, the HP Universal Build Manager, which will enable personalization and end-to-end control across multiple additive manufacturing technologies.
On November 12, HPQ and Shutterfly announced expansion of their strategic relationship. Shutterfly will invest in more than 60 new high-performance HP Indigo Digital Presses. This will help HPQ better meet the demand of the growing e-commerce market for photo gifts and photo products.
HPQ announced five new Chromebooks earlier this month to help teachers and students stay connected. This meaningful PC innovation that is designed for blended learning environments is expected to foster the collaboration and community that are critical to ensuring quality education.
HPQ’ total revenues have increased 6.7% sequentially to $15.26 billion in the fourth quarter ended October 31, 2020. Its non-GAAP EPS improved 3.3% year-over-year to $0.62 over the same period, while its free cash flow climbed 359% year-over-year to $ 1.8 billion.
Analysts expect HPQ’s revenues to rise 2.5% year-over-year to $14.98 billion in the current quarter ending January 31, 2021. The consensus EPS estimate of $0.66 for the current quarter indicates a slight improvement year-over-year. 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 43% over the past six months.
It is no surprise that HPQ is rated “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank. It is currently ranked #10 of 52 stocks in the Technology – Hardware Industry.
Amkor Technology, Inc. (AMKR)
AMKR is a provider of outsourced semiconductor packaging and test services to integrated device manufacturers, fabless semiconductor companies and contract foundries. Over the years, the company has capitalized on growth opportunities in advanced packaging technologies that target 5G, advanced automotive systems, IoT and high-performance computing.
AMKR’s trailing-12-month non-GAAP P/E of 14.05x is 52.2% lower than the industry average of 29.36x. In terms of trailing-12-month price/sales, the stock is currently trading at 0.89x, which is 79.6% lower than the industry average of 4.33x.
AMKR’s net sales have increased 24.9% year-over-year to $1.35 billion in the third quarter ended September 30, 2020. Its operating profit has risen 60.8% from the year-ago value to $127 million, while its EPS has improved 65.2% from the same period last year to $0.38.
Analysts expect AMKR’s revenues to rise 10.3% year-over-year to $1.30 billion in the about-to-be reported quarter ended December 31, 2020. A consensus EPS estimate of $1.25 for the fiscal 2020 represents a 150% improvement year-to-year. The company has an impressive earnings surprise history; it beat the Street EPS estimates in each of the trailing four quarters. The stock has gained 47.7% over the past six months.
AMKR’s POWR Ratings reflect this promising outlook. It is rated a “Strong Buy” in our POWR Ratings system. It has an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank. In 99-stock Semiconductor & Wireless Chip Industry, it is ranked #38.
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SNE shares were trading at $100.04 per share on Tuesday afternoon, up $0.76 (+0.77%). Year-to-date, SNE has declined -1.05%, versus a 2.80% 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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