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5 Tech Stocks with Strong Growth Prospects and Attractive Valuations

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Sejuti Banerjea
·7 min read
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The technology sector had a fantastic 2020 and current projections indicate that this year will build on the strength seen in the last. So while on the one hand, the growth projections remain solid, on the other, there has been notable rotation out of tech stocks into others that are expected to rebound this year. This has created opportunities in a segment that should see multiple years of consistent growth.

So this seems to be the right time to go hunting for good tech stories-

Advanced Micro Devices, Inc. AMD

AMD, the company that first challenged Intel’s dominance in CPUs and then proceeded to take significant share from the company, started out with a consumer focus. But with Lisa Su at the helm, the company’s technology developed in leaps and bounds even as rival Intel buckled under leadership issues and process delays. So it is now seeing success at enterprise as well.

That problem may have been ironed out with Intel’s new CEO, but Chipzilla still has a ways to go before it can get itself up to speed with the latest process technology. Consequently, the company is still promising to ship 7nm chips by 2023 while AMD is already shipping the things and taking share from Intel in the process.

While Intel remains the dominant player with over 80% share across desktops and notebooks, most of the balance is currently going to AMD. And while new capacity may have helped Intel regain some share, sustained gains against AMD look unlikely.

Over and above that, AMD is also making inroads into Intel’s prized server market. AMD’s pending merger with Xilinx will create opportunity for the combined entity to take further share in the server market; expand its scope within mobile base stations, auto, wireline telecom equipment, airplanes, medical equipment and other markets; facilitate tech synergies of various kinds; and generate $300 million in combined savings within 1.5 years of closing.

However, the renewed confidence in Intel has led to a slump in AMD shares, making them extremely attractive at these levels.

Other investment details include-

Zacks Rank #2 (Buy)

Zacks Industry Electronics – Semiconductors (top 34%)

Estimated growth in the current year 49.6%

Estimated long-term growth 31.6%

Growth Score A

Valuation: At 39.46X forward P/E, the shares are trading well below their median value of 55.64X over the past year. So they are cheap.

AMD reports on April 27

Vishay Intertechnology, Inc. VSH

Vishay is one of the world's largest manufacturers of discrete semiconductors and passive components.

The company is seeing resurgent demand across Europe, Asia and the Americas and across industries including auto (where electronic content is also increasing), computers and peripherals (work from home a big factor here), telecom (both 5G and 4G) consumer and medical. Commercial avionics remains weak.

Given the extremely strong demand in key markets, there is currently some concern about component shortage. Shut-downs (mainly in Asia) and lower shipping capacity because of the pandemic are contributing to this.

The net effect of all this is some cost escalation, extended lead times, a rising book-to-bill and a higher backlog, which together sounds positive because these metrics are indicative of strong demand.

And if anyone had any doubts, the numbers clarify things-

Zacks Rank #1 (Strong Buy)

Zacks Industry Semiconductor - Discretes (top 4%)

Estimated growth in the current year 87.7%

Estimated long-term growth 20.3%

Growth Score B

Valuation: At 14.45X forward P/E, the shares are trading below their median value of 16.35X over the past year. So they are attractive.

VSH reports on May 11

NVIDIA Corporation NVDA

NVIDIA Corporation is the world leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, the company’s focus has evolved from PC graphics to data centers, cryptocurrency mining hardware, autonomous vehicles and robotics. Its artificial intelligence (AI) based solutions now support high performance computing (HPC), gaming and virtual reality (VR) platforms.

If its acquisition of ARM crosses regulatory hurdles, it will be a big deal for future product development.

NVIDIA’s GPUs are extremely well positioned to make the most of growth prospects in the data center (including for inference, data science and machine learning); it is a key player in AI development through partnerships with market leaders like Amazon, Baidu, Facebook, IBM, Microsoft and SAP; it is a key player in the emerging autonomous vehicles market (where it is partnered with 320+ automakers, tier-one suppliers and automotive research institutions) and the leader in gaming (its PC graphics cards are doing extremely well and GeForce NOW for streaming could bring share gains).

The company is also seeing shortage in its GeForce GPUs as it struggles to meet soaring demand, even in the slack season, as the larger number of people operating from home is leading to unusual demand for entertainment.

NVIDIA also has some attractive growth numbers-

Zacks Rank #2

Zacks Industry Semiconductor - General (top 19%)

Estimated growth in the current year 33.7%

Estimated long-term growth 12.6%

Growth Score B

Valuation: At 40.57X forward P/E, the shares are trading at their lowest multiple over the past year. The high point of the annual range is 77.58X. So they are worth buying at these levels.

NVDA reports on May 20

Ubiquiti Inc. UI

Ubiquiti sells carrier-class network infrastructure for fixed wireless broadband, wireless backhaul systems and routing into the service provider market and wireless local area network (WLAN) infrastructure, video surveillance products and machine-to-machine communication components into the enterprise market. Roughly two-thirds of the business comes from the enterprise market and the balance from the service provider market.

The pandemic has driven a lot of transaction activity online and Ubiquiti has successfully leveraged its webstores to generate strong results. Supply chain issues remain disruptive and increase cost for most technology providers and Ubiquiti is no exception to this phenomenon. However, the company has good visibility through its 100+ distributors and resellers. It is therefore better positioned than others to minimize losses.

The superiority of its business model is evident from these numbers-

Zacks Rank #1

Zacks Industry Wireless Equipment (top 27%)

Estimated growth in the current year 73.1%

Estimated long-term growth 32.9%

Growth Score A

Valuation: At 24.64X forward P/E, the shares are trading below their median value of 28.88X over the past year. So they are undervalued.

UI reports on May 14

Knowles Corporation KN

Knowles Corp. is a provider of advanced micro-acoustic, audio processing and precision device solutions into the mobile consumer electronics, IoT, communications, medical, defense, automotive and industrial markets.

The bulk of revenue comes from the Audio segment, which sells analog and digital MEMS microphones and balanced armature speakers, audio processors, and software and algorithms for applications in the mobile, ear and IoT markets. The Precision Devices segment sells its highly engineered capacitors, filters and radio frequency devices for technically demanding applications in power supplies, radar, medical implants and satellites cater to the industrial, defense, aerospace, medical, telecommunications and automotive markets.

The pandemic has dampened sales in the medical devices (as people avoided less urgent procedures) and defense (because of focus on pandemic relief initiatives) segments. However, other segments made up for this weakness, as MEMS microphone demand continues to improve. Its unique capabilities in acoustics, digital signal processing and algorithms positions it to generate sustained growth even as people increasingly adopt voice mode and natural language to interact with machines.

Here’s a look at its very attractive numbers-

Zacks Rank #2

Zacks Industry Communication - Components (top 32%)

Estimated growth in the current year 88.4%

Estimated long-term growth 10.0%

Growth Score A

Valuation: At 24.64X forward P/E, the shares are trading below their median value of 28.88X over the past year. So they are undervalued.

KN reports on May 3

3 Month Price Performance

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>


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Vishay Intertechnology, Inc. (VSH) : Free Stock Analysis Report

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