Tech stocks have been on a roll, but that’s only the headline news. Don’t think that because some of the big names are going gangbusters that the good news translates to all tech firms, even similar firms in the same sectors as the winners.
The one thing that happens when earnings slow is investors start looking for strength, companies that can keep their earnings strong even when the economy gets weaker.
The seven risky tech stocks to purge below represent the stocks of companies that now find themselves left out of the current tech surge. And if they’re struggling now, it’s not likely they’ll find their footing during more challenging market conditions.
They may not implode, but they will find it tough to grow. And when there are plenty of sectors — and companies — that will benefit from the slower, steady growth ahead, there’s no point in holding these stocks and hoping for upside.
Risky Tech Stocks: CoreLogic (CLGX)
CoreLogic Inc (NASDAQ:CLGX) is a data firm that specializes in analytics for the real estate business. It has 99.9% of the property records for U.S. housing, covering over 3,100 counties. It is a go-to resource for financial institutions, real estate companies and the like when valuing properties or managing the investment portfolios for companies.
The problem is, even with low-interest rates, the housing market isn’t taking off. Baby boomers are downsizing as they get older. And the younger generations who should be the next wave of home buying still remember the real estate bust a decade ago and aren’t as interested in making a home their core asset.
Plus, since many are strapped with student debt, it takes a lot more effort to even afford a home. Many college grads are still paying off student loans into their 30s, a time when most previous generations were buying first homes.
That may explain why, even after a year-to-date run of 26% for the stock, CLGX is still off 7% in the past year and analysts are already bearish on its Q1 earnings.
International Business Machines Corp (IBM)
International Business Machines Corp (NYSE:IBM) remains a force in the big tech world, but it’s now less a headliner than it was before the dot-com boom started. Its R&D has always been stellar, but Big Blue is a textbook case of a big corporation that wasn’t quick enough on its feet to take advantage of all the innovation it had sitting in its pipeline.
Its sheer size has kept it in the game, as well as the quality it produces. But its story is like that of the U.S. auto industry. Hungry competition came in and changed not only the rules but the playing field and getting the biggest tech firm in the world (as it once was) to adapt was almost insulting to leadership.
Even after several strategic missteps over the decades, it was even slow to jump into cloud computing.
Just this week, IBM stock slid after reporting an earnings miss for Q1. The stock rallied with all the other big tech but again, it’s not finding a way to compete against its peers or even smaller niche firms that are eating into its business.
Source: Simone.Brunozzi Via Flickr
Baidu Inc ADR (NASDAQ:BIDU) is the second-largest internet search company in the world and the first Chinese stock admitted into the Nasdaq-100.
Although, given its size and power in China and other places around the globe, it carries a $59 billion market cap in the U.S., whereas Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) has a market cap of $860 billion. But right now this is a value trap.
The Chinese economy has been slow for a while, and one quarter of solid numbers doesn’t mean this monster economy is on the mend. And given the fact that these improved numbers also help in trade negotiations with the US, they may not be as improved as we’re led to believe.
And BIDU is having some issues of its own. Search engine growth is slowing as the business matures and now the company is spending money to keep its growth going. Also, its autonomous vehicle investments are also drawing large sums of cash with little short-term benefit.
There’s potential here to be sure. But now isn’t the time to buy in or hope for a quick turnaround.
Blackbaud Inc (NASDAQ:BLKB) is a niche player. It offers cloud-based and software solutions for the global philanthropic community.
One of its key challenges now is like many software services companies before it – transitioning its software services to a cloud services model. BLKB is doing that, but it’s a challenge when it also likely involves changing the revenue model and non-profits aren’t usually known for moving quickly with changes since they have their own budgetary limitations.
And while it shifts its delivery and revenue models, it’s also having to invest to find more growth. Last year, growth started to slow. And now, many analysts only expect significant growth to return in 2020.
That may well work out and BLKB may be back on a growth track, but waiting and hoping for that to happen isn’t really what investing is about. Also, you have to consider that there are a growing number of alternatives out there as well and once the non-profits are put in a position to re-evaluate their contracts, it may not work in BLKB’s favor.
DXC Technology Co (DXC)
DXC Technology Co (NYSE:DXC) is a technology consulting firm that focuses on global enterprises. Basically, that means it helps multi-national companies build out their tech platforms to better compete and execute.
And that is DXC’s niche. It works in all manner of industries, from manufacturing to healthcare to financial to aerospace and defense to consumer and retail. One of its recent newsworthy projects was working with BMW to accelerate its autonomous driving efforts.
One of its top contracts is working on IT systems for the U.S. Postal Service.
The two challenges DXC faces are:
1) It’s only 2 years old.
2) It is looking for contracts in a global slowdown — Europe is weak, Asia is stabilizing and the U.S. is slowing down.
Because of its youth, there’s no track record on how well it will deal with these challenges. And as far as its USPS contract goes, that could be challenged from the business or the government appropriations side.
There’s too much risk right now, too many potential competitors and too much ground to make up.
LogMeIn Inc (NASDAQ:LOGM) specializes in remote access and collaboration tools for businesses of all sizes. It supports more than 2 million users per day on its platforms and 5 billion voice minutes per year.
One of its most popular platforms is GoToMeeting. It also has a number of other ‘GoTo’ platforms as well as OpenVoice, Jive and Grasshopper. It also has a set of engagement and support tools as well as identity and access tools to round out its complete set of collaboration platforms.
Its tools target the small and medium-sized business sectors, which is a target rich environment for these tools. However, there is plenty of competition in the space. And the challenge with remote access is that workers’ connectivity isn’t always ideal and maintaining good connections can be a frustrating challenge. That means companies shop vendors.
LOGM is having troubles with its growth and its competition. Q4 came in weak and then the company guided lower for Q1. And now, competitor Zoom is headed for an IPO with stellar growth numbers. All bad timing for LOGM.
Source: David via Flickr (Modified)
FireEye Inc (NASDAQ:FEYE) is a cybersecurity company. Now, this is one of those bulletproof megatrend sectors. But FEYE is a perfect example of how a rising tide doesn’t raise all boats.
FEYE stock hit its record high more than 5 years ago. It was trading over 80. Now the stock is around 16. And it has been trading in the teens for the past 3 years.
Now, there’s no doubt that the company has some great technology. But this goes to show that running a tech company isn’t all about having great technology. You have to know how to run the business, too.
For most of the stocks in this article, Q1 has been very good to them, even those that are underwater for the year got a need boost in Q1.
Not FEYE. It had a disappointing Q4 and then guided lower for Q1.
There are some bulls out there that say the company is transitioning out of hardware and focusing on its software platforms, which can boost its paltry margins. And that may be so. But do you want to wait for that to possibly happen or put your money somewhere that is already doing just that?
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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