The tech sector has been in for some punishment, declining 3.5% on the month. But as we all know, it is the big five – Facebook (NASDAQ:FB) FB, Apple AAPL, Amazon AMZN, Microsoft MSFT and Alphabet (NASDAQ:GOOGL) GOOGL that have really taken it on the chin.
Facebook is about flat (down 0.3%), Apple down 7.0%, Amazon down 5.4%, Microsoft 6.5% and Alphabet 1.8%. Since these companies comprise a large chunk of tech’s total market cap, it’s understandable that this will send the whole sector down.
Big Tech Price Performance (One-Month)
The problem is mostly related to the higher taxes that big tech will have to pay to finance President Biden’s initiative. There’s also a small amount of concern about the growing regulatory scrutiny. But honestly, neither of these things deserve a lot of concern since all these companies are sitting on huge cash piles.
The impact on the EPS that some Wall Street analysts are already forecasting, isn’t a nose-out-of-joint prospect. In fact valuations are still rich because investors realize that these companies are going to come out with so much more growth that it really will not matter. That much.
On the other hand, if prices keep getting pushed down, it could create an opportunity to get into these really massive plays.
However, if you’re looking for tech exposure and would prefer to buy what’s cheap today, there are still plenty of fish in the sea. Here are a few that look good now-
Arrow Electronics (NYSE:ARW), Inc. ARW
New York-based Arrow Electronics is one of the world’s largest distributors of electronic components and enterprise computing products. Arrow supplies one of the broadest ranges of products and value-added services to help customers reduce their marketing time, lower the total cost of ownership, introduce innovative products and enhance their overall competitiveness. The company serves over 150,000 customers through 300 sales facilities and 45 distribution centers in over 80 countries.
The shares carry a Zacks Rank #2 (Buy) and VGM Score A. They belong to the Electronics - Parts Distribution industry, which is in the top 12% of Zacks classified industries. These factors alone are strongly indicative of share price appreciation in the near future.
Arrow’s revenue and EPS are expected to grow 19.6% and 53.4%, respectively this year and 2.0% and 6.3%, respectively in the following year. Its current year EPS estimate has jumped 16% in the last 30 days.
And yet, the shares trade at 9.1X P/E and 0.28X sales (P/S). A P/E multiple below 15 is cheap for any stock, but for tech companies, even a 25X multiple is not too bad. A P/S value below 1 indicates that investors are underpaying for its sales. So on both counts, the shares are undervalued.
Based in Phoenix, AZ, Avnet is one of the world’s largest distributors of electronic components and computer products to original equipment manufacturers (OEMs), electronic manufacturing services (EMS) providers, original design manufacturers (ODMs), and value-added resellers (VARs). IBM (NYSE:IBM) and HPQ are its most significant customers. Avnet sources its electronic products from more than 300 component and system manufacturers.
The shares carry a Zacks Rank #2 and VGM Score B. They belong to the Electronics - Parts Distribution industry, which is in the top 12% of Zacks classified industries (the top 50% of Zacks-classified industries have historically outperformed the bottom 50% by a factor of more than 2 to 1).
Avnet’s revenue and EPS are currently expected to grow 9.0% and 51.3%, respectively in 2021 and 4.2% and 41.0%, respectively in the following year. Its current year EPS estimate is up 16.5% in the last 30 days.
Given that the shares trade at 18.4X P/E and 0.23X sales, they appear undervalued.
Jabil, Inc. JBL
Headquartered in St. Petersburg, FL, Jabil is one of the largest global EMS suppliers. The company offers electronics design, production, product management and after-market services mainly to low-margin high-volume customers in the aerospace, automotive, computing, consumer, defense, industrial, instrumentation, medical, networking, peripherals, storage and telecommunications industries.
Its largest customers are Apple, Cisco (NASDAQ:CSCO), Hewlett-Packard Company (NYSE:HPQ), Keysight Technologies (NYSE:KEYS), LM Ericsson (BS:ERICAs), NetApp (NASDAQ:NTAP), Nokia (NYSE:NOK) Networks, SolarEdge Technologies (NASDAQ:SEDG), Valeo (PA:VLOF) S.A. and Zebra Technologies.
The shares carry a Zacks Rank #2 and VGM Score B. They belong to the Electronics - Manufacturing Services industry, which is in the top 12% of Zacks classified industries. These factors in combination indicate good upside potential.
Jabil’s revenue and EPS are currently expected to grow 4.6% and 74.1%, respectively in 2021 and 3.5% and 6.2%, respectively in the following year. Its current year EPS estimate is up 9.1% in the last 60 days.
Given that the shares trade at 10.6X P/E and 0.28X sales, the shares are cheap.
Plexus (NASDAQ:PLXS) Corp. PLXS
Neenah, WI-based Plexus Corp. is another EMS supplier to a wide range of industries, including networking/ communications, healthcare/life sciences, industrial/ commercial and defense/security/aerospace. The company primarily serves customers requiring mid-to-low volumes in the higher-margin and high-growth segments of the EMS market.
Plexus provides most of the contract manufacturing services on a turnkey basis. Turnkey projects involve more resources than services provided on a consignment basis as they involve not only labor but also material procurement and warehousing.
The shares carry a Zacks Rank #2 and VGM Score B. They belong to the Electronics - Manufacturing Services industry, which is in the top 12% of Zacks classified industries.
Plexus’s revenue and EPS are currently expected to grow a respective 3.9% and 24.1%, this year and another 8.7% and 5.6%, respectively in the following year. Its current year EPS estimate is up 10.3% in the last 30 days.
Since the shares trade at 17.7X P/E and 0.78X sales, they may be considered undervalued.
SMART Global Holdings, Inc. SGH
Newark, CA-based Smart Global Holdings (NASDAQ:SGH) is a designer, manufacturer and supplier of electronic subsystems to OEMs. It engaged in the computer, industrial, networking, telecommunications, aerospace and defense markets. The company operates primarily in the U.S., Europe, Asia and Latin America.
The shares carry a Zacks Rank #1 (Strong Buy) and VGM Score B. They belong to the Electronics – Semiconductors industry, which is in the top 37% of Zacks classified industries.
SMART Global’s revenue and EPS are currently expected to grow a respective 29.4% and 53.3%, this year and a respective 22.7% and 27.8% next year. Its current year EPS estimate is up 12.5% in the last 60 days.
Since the shares trade at 11.1X P/E and 0.93X sales, they may be considered undervalued.
One-Month Price Performance
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Microsoft Corporation (NASDAQ:MSFT): Free Stock Analysis Report
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