Top 10 Undervalued Tech Stocks
In this article, we discuss the top 10 undervalued tech stocks. If you wish to skip our comprehensive analysis of the tech industry and these stocks, go directly to Top 5 Undervalued Tech Stocks.
The technology sector represents around 28% of the S&P 500, more than the combined share of consumer discretionary and healthcare sectors. Over the last 20 years, much of the gains posted by the economy are owed to tech stocks that have revolutionized everyday life for billions around the globe. Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), and Tesla, Inc. (NASDAQ:TSLA) — all the blue-chip stocks in the trillion-dollar fraternity — happen to be technology stocks.
But come 2022, the volatile market situation has put a dent in all sectors of the economy. The tech-heavy Nasdaq composite has dropped 12.28% year-to-date, while the Dow Jones Industrial Average and the S&P 500 have lost 5.71% and 6.58% in year-to-date respectively. The jittery sentiment prevalent in the market can be owed to a variety of factors. The Fed has raised interest rates and seems set to continue throughout the year. Recently, Fed Governor Lael Brainard sent markets into a sell-off frenzy by saying that the central bank is committed to fighting inflation by hiking interest rates. It also plans to reduce its balance sheet at a ‘rapid pace’. These measures by the Fed come at the same time that oil prices are touching record highs as the global market reels from the Russian invasion of Ukraine and the subsequent sanctions imposed on the country.
Photo by Adam Nowakowski on Unsplash
Amidst all this volatility, investors need to pick up stocks that possess growth potential and are trading at less than their intrinsic market value. This would safeguard their portfolios from the risk that comes inherent in the current climate. Even if the tech sector, or the larger economy, is undergoing a nervous sell-off, choosing undervalued tech stocks puts one in a position to be able to achieve higher gains as soon as the market takes off.
Let’s now take a look at the top undervalued tech stocks.
We examined the tech industry and picked stocks with a P/E (price to earnings) ratio of less than 20. We also looked for growth potential, analysts’ ratings, and the hedge fund sentiment around each stock, which has been derived from Insider Monkey’s database of 900+ elite hedge funds.
10. STMicroelectronics N.V. (NYSE:STM)
PE Ratio: 18.17
STMicroelectronics N.V. (NYSE:STM) starts off our list of 10 undervalued tech stocks. The Swiss company deals in the provision of semiconductor integrated circuits and discrete devices to industries including telecommunications and consumer electronics.
Analyst Adithya Metuku of research firm Credit Suisse on February 17 maintained an ‘Outperform’ rating on STMicroelectronics N.V. (NYSE:STM) shares and increased the price target to €65 from €60. The firm recently introduced the third generation of MEMS sensors, enabling the next upgrade in features and performance for products such as smartphones and others in healthcare and retail. In March, STMicroelectronics N.V. (NYSE:STM) released radiation-hardened ICs (integrated circuits) that would feature in low-cost satellites during space missions.
STMicroelectronics N.V. (NYSE:STM) reported its fourth quarter earnings on January 27, and posted an EPS of $0.82, which was above estimates by $0.13. Quarterly revenue stood at $3.56 billion, outperforming analysts’ estimates by $91.40 million and signaling a bump of 9.92% year-0n-year.
Of the hedge funds tracked by Insider Monkey, 15 were long STMicroelectronics N.V. (NYSE:STM) in Q4 2021 with combined positions worth $264.3 million. This shows an upward trend from the third quarter where 11 hedge funds held $49 million worth of stakes in the company. Renaissance Technologies was the top shareholder of STMicroelectronics N.V. (NYSE:STM) in the fourth quarter with 1.53 million shares valued at $75.78 million.
In addition to Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG), STMicroelectronics N.V. (NYSE:STM) is a tech stock on the radar of institutional investors.
9. A10 Networks, Inc. (NYSE:ATEN)
PE Ratio: 11.65
A10 Networks, Inc. (NYSE:ATEN) is a California-based firm which deals in the provision of cybersecurity, cloud storage and enterprise solutions. Ever since the Russian invasion of Ukraine unfolded, cybersecurity stocks have been in the limelight as critical government infrastructure on both sides of the conflict face a heightened risk of cyber attacks. As of April 5, shares of A10 Networks, Inc. (NYSE:ATEN) have gained 42.12% in the last 12 months, and 3.22% in the last 6 months.
Investors were seen piling into A10 Networks, Inc. (NYSE:ATEN) in the fourth quarter where 20 hedge funds were long on the company shares, with combined holdings worth $155.5 million. In contrast, 14 hedge funds held positions worth $188.8 million in the cybersecurity firm a quarter ago. Renaissance Technologies of billionaire Jim Simons was the top shareholder of A10 Networks, Inc. (NYSE:ATEN) in the fourth quarter, with 2.95 million shares worth $48.9 million.
In October last year, BWS Financial analyst Hamed Khorsand raised the firm’s price target on A10 Networks, Inc. (NYSE:ATEN) to $20 from $17 and maintained a Buy rating on the company shares. The analyst sees the firm benefiting from the rise in cybersecurity spending by service providers and enterprises.
On February 10, A10 Networks, Inc. (NYSE:ATEN) declared a $0.05 per share quarterly dividend, which was in-line with previous. As of April 5, the firm pays a dividend yield of 1.45%. It reported earnings per share of $0.20 for the fourth quarter, which outperformed estimates by $0.01. Quarterly revenue of $70.67 million was also above estimates by $1.83 million.
8. Nokia Oyj (NYSE:NOK) PE Ratio: 17.44
Nokia Oyj (NYSE:NOK) provides mobile network infrastructure services around the globe. Once a global leader in cellular phones, the firm failed to keep up in the smartphone era but has now reemerged as a critical player in the 5G space.
The Finnish company recently signed or expanded 5G infrastructure agreements with service providers such as T-Mobile in Poland, Chunghwa Telecom in Taiwan and IOH in Indonesia. On March 17, Jefferies analyst Janardan Menon initiated coverage of Nokia Oyj (NYSE:NOK) with a ‘Buy’ rating and €6 price target. He sees telecom equipment makers having a strong year on the back of increased 5G rollouts in Europe and elevated C-band deployments in the United States. The analyst sees Nokia benefiting from an acceleration in sales and margin expansion.
In the fourth quarter, Nokia Oyj (NYSE:NOK) posted earnings per share of $0.15, exceeding analysts’ estimates by $0.02. The revenue for Q4 stood at $7.33 billion, which also outperformed consensus estimates by $54.89 million.
Investors are keen on Nokia Oyj (NYSE:NOK) given its upward trajectory as a dominant name in the rollout of 5G technology across the world. 26 hedge funds were bullish on the company shares in the fourth quarter, in contrast to 22 hedge funds in the preceding quarter. The largest shareholder in Nokia Oyj (NYSE:NOK) during the fourth quarter was Arrowstreet Capital, which held 37.34 million shares valued at $232.3 million.
7. Hewlett Packard Enterprise Company (NYSE:HPE) PE Ratio: 5.73
Hewlett Packard Enterprise Company (NYSE:HPE) is a Texas-based information technology firm which deals in the provision of services related to data, cloud storage, networking and servers to businesses around the world. It was formed after the Hewlett Packard Company was split into two businesses in 2015, forming Hewlett Packard Enterprise Company (NYSE:HPE) and HP Inc. (NYSE:HPQ) which retained the firm’s PC and printing business.
Bernstein analyst Toni Sacconaghi in early March upgraded Hewlett Packard Enterprise Company (NYSE:HPE) to ‘Outperform’ from ‘Market Perform’ and set a $20 price target. The analyst upgraded his valuation on the basis of strong enterprise demand, upside potential to earnings and free cash flow estimates, and the stock’s “increasingly attractive valuation”. In December, Stifel analyst Matthew Sheerin named Hewlett Packard Enterprise Company (NYSE:HPE) among his top 2022 picks for the tech supply chain sector, noting that demand signals for the sector remain quite strong for the year.
Reporting its fourth quarter earnings on March 1, Hewlett Packard Enterprise Company (NYSE:HPE) disclosed earnings per share of $0.53, which was above estimates by $0.07.
As of the fourth quarter, 35 hedge funds were holding stakes in Hewlett Packard Enterprise Company (NYSE:HPE) with a combined value of $1.14 billion. This shows an upward trend from the preceding quarter where 33 hedge funds held $1 billion worth of positions in the company. Pzena Investment Management was the top shareholder of Hewlett Packard Enterprise Company (NYSE:HPE) in Q4 2021, with 42.9 million shares valued at $677 million.
6. Vontier Corporation (NYSE:VNT)
PE Ratio: 10.37
Vontier Corporation (NYSE:VNT) provides products and services to the mobility infrastructure industry around the globe, which includes equipment such as fueling equipment, environmental sensors and software solutions for traffic light controls, as well as point-of-sale and payment systems.
On March 23, Argus analyst Kristina Ruggeri reiterated a ‘Buy’ rating on Vontier Corporation (NYSE:VNT) shares, noting that current price levels offer investors a favorable entry point, and also raised her 2022 adjusted EPS estimate for the firm. She has a $30 price target on Vontier shares, down from $40. Citi analyst Andrew Kaplowitz in February also maintained a ‘Buy’ rating on the company shares, and lowered the price target to $34 from $39. The company reported strong execution and upside to its 2022 growth outlook, and according to the analyst, its current valuation presents investors a good opportunity as the firm maintains a strong operational focus and deploys capital over time.
In February, Vontier Corporation (NYSE:VNT) announced a $250 million accelerated share repurchase agreement with Citibank. Vontier will acquire these shares as part of its $500 million share repurchase program which was announced in May 2021. It posted an EPS of $0.83 in the fourth quarter, beating estimates by $0.03.
Hedge fund sentiment was up on Vontier Corporation (NYSE:VNT) in the fourth quarter, where 37 hedge funds were holding positions in the firm. In comparison, 31 hedge funds held stakes in the firm a quarter ago. Royce & Associates held a $98.5 million stake in Vontier Corporation (NYSE:VNT) consisting of 3.2 million shares during the fourth quarter, making it the top shareholder of the firm.
Miller Value Partners, an investment firm, talked about Vontier Corporation (NYSE:VNT) in its Q1 2021 investor letter. The fund said:
“We also purchased Vontier, a spin-out from Fortive, which itself was a spinout from Danaher. Danaher’s unique approach to managing its business and acquiring companies created massive value over the years. Fortive pursued the same path. Vontier uses the same business and acquisition systems and offers similar potential. Vontier’s main businesses are gas station software and hardware and auto repair tooling. The market doesn’t value it similarly to the other two companies due to near-term business headwinds from passing a regulatory-led demand surge for its equipment and concerns about electric vehicle disruption. Management has already made some smart investments in the space and we believe it will deploy the same rational capital allocation policy that drove so much value at its predecessors.”
Alongside big names such as Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG), Vontier Corporation (NYSE:VNT) is an attractive tech stock to buy.
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Disclosure. None. Top 10 Undervalued Tech Stocks is originally published on Insider Monkey.