Most tech stocks soared last year as the effects of the COVID-19 pandemic increased the world’s dependence on technology products and services. However, as the economy began recovering this year with fiscal and monetary policy support and a fast-paced mass vaccination program, investors rotated away from expensive tech stocks to quality cyclical stocks, driving a tech sell-off earlier this year. However, because recent corporate earnings have so far indicated solid performance by tech companies, and the demand for advanced technology is expected to continue increasing, investors are again focusing on quality tech stocks. This is evidenced by the tech-heavy Nasdaq Composite’s solid performance over the past month.
Investors’ renewed interest in tech stocks is also evident in the Technology Select Sector SPDR Fund’s (XLK) 7.9% returns over the past month versus the SPDR S&P 500 ETF Trust’s (SPY) 5.4% gains. And because the remote working and shopping trend is likely here to stay even after the pandemic subsides, several tech stocks that provide related software and technologies are expected to generate steady returns in the coming months.
As a result, we think it wise to bet on United Microelectronics Corporation (UMC), LG Display Co., Ltd. (LPL), Daktronics, Inc. (DAKT), and Computer Task Group, Incorporated (CTG). They are currently trading below $15 but hold immense upside potential based on the expected growth in their financials.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC is a semiconductor wafer foundry that operates internationally. The company does business through two segments—Wafer Fabrication and New Business. It provides circuit design, mask tooling, wafer fabrication, and assembly and testing services, and researches, develops, and manufactures products in the solar energy and LED industries.
UMC, eMemory and its subsidiary, PUFsecurity, last December announced the joint development of the world’s first PUF (Physical Unclonable Function)-based secure embedded flash solution. The product increases the security of MCU and SoC embedded NVM storage and protects user data and critical firmware assets. So, with an increasing need for products to protect software from bad actors and safeguard user data, the company should witness increasing demand with the solution.
UMC’s consolidated revenue increased 8.2% year-over-year to NT$45.30 billion for the fourth quarter, ended December 31, 2020. Its gross profit grew 178.3% year-over-year to NT$5.61 billion, while its net income increased 191.8% year-over-year to NT$11.20 billion. The company’s EPS increased 178.8% year-over-year to NT$0.92.
For the quarter ended March 31, 2021, analysts expect UMC’s EPS to come in at $0.10, which represents a 233.3% year-over-year increase. The company’s revenue is expected to increase 25.2% year-over-year in fiscal 2020 to $6.01 billion. The stock has gained 314.6% over the past year and closed yesterday’s trading session at $10.82.
UMC’s POWR Ratings reflect this promising outlook. The company has an A overall rating, which translates to a Strong Buy in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
The stock has a B grade for Momentum, Quality, Value, Growth, Stability, and Sentiment. Within the B-rated Semiconductor & Wireless Chip industry, UMC is ranked #1 of 98 stocks.
To see all the POWR Ratings for UMC, click here
LG Display Co., Ltd. (LPL)
Based in Seoul, South Korea, LPL manufactures and sells thin-film transistor liquid crystal display (TFT-LCD) and organic light emitting diode (OLED) technology-based display panels internationally. The company’s TFT-LCD and OLED technology-based display panels are primarily used in televisions, notebook computers, desktop monitors, tablet computers, and mobile devices.
In January, LPL unveiled its next-generation OLED TV display with improved picture quality at CES 2021 to demonstrate the evolution of OLED technology. The company plans to apply its advanced next-generation OLED technology to high-end TV models that are planned for launch later this year. It is also expected to introduce differentiated products, such as Film Cinematic Sound OLED (Film CSO). As a result of these introductions, LPL’s market dominance is expected to increase significantly in the premium TV markets.
LPL’s net sales increased 16% year-over-year to KRW7,461 billion for the fourth quarter, ended December 31, 2020. Its operating profit grew 317.7% sequentially to KRW685 billion, while its net income increased 5,545.4% sequentially to KRW621 billion.
Analysts expect LPL’s EPS to come in at $1.90 in its fiscal year 2021, which represents a 1,004.8% year-over-year increase. It surpassed the consensus EPS estimates in three of the trailing four quarters. Its revenue is expected to increase 60.3% year-over-year to $6.35 billion for the quarter ended March 31, 2021. The stock has gained 176.4% over the past year and closed yesterday’s trading session at $12.19.
LPL’s POWR Ratings reflect its solid prospects. The company has an overall A rating, translates to Strong Buy in our proprietary ratings system. It has an A grade for Growth and Sentiment, and a B grade for Value and Momentum.
To see additional POWR Ratings for LPL (Stability and Quality), click here.
LPL is ranked #3 of 44 stocks in the B-rated Technology – Electronics industry.
Daktronics, Inc. (DAKT)
In business for more than five decades, DAKT designs, manufactures, markets, and sells electronic display systems and related products worldwide. It operates through five segments—Commercial, Live Events, High School Park and Recreation, Transportation, and International. The company’s offerings include video display systems, indoor and outdoor LED video displays, mobile and modular display systems, architectural lighting and display products, and other related products.
DAKT partnered with the Phoenix Suns in January to manufacture and install an 18-display LED super system totaling 55.1 million LEDs and including a new center hung configuration, a lobby, ribbon, tunnel, scorer’s table and locker room displays. The company also installed an HDR-Capable LED Technology enabled video display in Kauffman Stadium in December 2020. These installations are an indication of DAKT’s market dominance.
The company’s net sales for its fiscal year 2021 third quarter (ended January 30, 2021) were adversely impacted by lower market activity amid the COVID-19 pandemic. However, its gross profit as a percentage of net sales came in at 25.4% for the quarter, compared to 19.2% in the prior-year period. Its operating expenses declined more than 28% year-over-year to $24.18 million.
For its fiscal year 2021, analysts expect DAKT’s EPS to come in at $0.26, which represents a 2,500% year-over-year increase. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 10% in its fiscal year 2022 to $543.09 million. The stock has gained 58.3% over the past six months and closed yesterday’s trading session at $6.30.
It’s no surprise that DAKT has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has an A grade for Value, and a B grade for Momentum, Sentiment, and Quality.
Computer Task Group, Incorporated (CTG)
CTG provides information and technology services in North America, South America, Western Europe, and India. It provides business process transformation solutions, technology transformation solutions, operations transformation solutions and IT and other staffing services. It serves financial services, healthcare, manufacturing, energy industries and technology service providers.
On February 24, CTG shared further details about the company’s investments in advanced digital solutions and service offerings that include world-class digital leadership and expertise, innovative tools and methodologies, and adaptable delivery model options, all aimed at accelerating project momentum and the achievement of desired IT and business outcomes for its clients.
CTG’s revenue increased 14.3% sequentially to $101.35 million for the fourth quarter ended December 31, 2020. The company’s gross profit came in at $21.63 million compared to $20.24 million in the prior-year period. Its non-GAAP operating profit grew 50% sequentially to $3.60 million.
CTG’s EPS is expected to come in at $0.69 in its fiscal year 2022, which represents a 25.5% year-over-year increase. It surpassed Street EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 7.2% year-over-year for the quarter ended March 31 to $93.22 million. The stock has gained 157.6% over the past year and closed yesterday’s trading session at $10.56.
CTG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. It also has an A grade for Value and Sentiment, and a B grade for Stability.
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UMC shares were trading at $10.46 per share on Wednesday afternoon, down $0.36 (-3.33%). Year-to-date, UMC has gained 24.08%, versus a 12.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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