Here are seven tech stocks that are still attractively valued.
Year after year, tech stocks continue to outperform the overall market. In the past year, the Nasdaq Composite index has roughly doubled the total return of the S&P 500. That bullish momentum is great for tech stock investors, but it has stretched the valuations of many of the top-performing stocks. Some investors are even drawing comparisons to tech stock dot-com bubble valuations in 2000. Fortunately for value investors, there are still opportunities within the tech sector to buy attractive stocks at a reasonable price. Here are seven undervalued tech stocks that the CFRA analyst team loves in 2021.
IBM (ticker: IBM)
IBM stock is down about 21% in the past three years, but analyst David Holt says the company is finally on the right path toward revenue and earnings growth. Without question, IBM has been slow to adapt to a cloud-based strategy, but Holt says the company's recent deal signings and improving backlog are positive trends. CFRA is projecting gross margins should expand to 49.5% in 2021. The stock pays a 5% dividend and trades at just 11 times forward earnings estimates. CFRA has a "buy" rating and $144 price target for IBM stock.
Cisco Systems (CSCO)
Data networking product leader Cisco was one of the most overvalued stocks in the tech sector in 2000, but it may be one of the most undervalued in 2021. Analyst Keith Snyder says Cisco is well-positioned to benefit from long-term bullish catalysts such as the Wi-Fi 6 and 5G wireless network upgrade cycles. Cisco is exposed to many of the same trends driving high-flying semiconductor stocks, such as rising bandwidth usage, data center solutions and cloud networking. Cisco trades at just 14 times forward earnings estimates. CFRA has a "buy" rating and $52 price target for CSCO stock.
Skyworks Solutions (SWKS)
Skyworks Solutions produces power amplifiers and radio frequency components for mobile devices. Analyst Angelo Zino says the 5G upgrade cycle will improve demand for Skyworks' products and boost its earnings per share from $4.80 in 2020 to $8.78 by 2022. Zino says the stock's valuation is attractive at about 22 times forward earnings, and its balance sheet carries a healthy $980 million in cash. In addition to the 5G catalyst, Zino says Skyworks will profit from opportunities in the Internet of Things and next-generation automobiles. CFRA has a "strong buy" rating and $160 price target for SWKS stock.
Qualcomm is a leading semiconductor stock that produces components for mobile devices and related infrastructure. Zino says Qualcomm shares are attractive at a forward earnings multiple of just 22. CFRA is projecting 2022 earnings per share of $7.81, up from $4.52 in 2020. The stock also pays a 1.7% dividend. Zino says Qualcomm's long-term licensing agreements provide earnings stability and financial visibility for investors. The company's Snapdragon products will also be in high demand as the global 5G upgrade cycle continues, according to Zino. CFRA has a "buy" rating and $160 price target for QCOM stock.
Akamai Technologies (AKAM)
Akamai Technologies is a market leader in cloud-based content delivery network services. Analyst John Freeman is projecting at least 20% annual revenue growth for Akamai's security business and says the outlook for the company's core CDN business is improving. Freeman is projecting at least 2% annual CDN revenue growth through 2023. Growth in multiplayer online gaming and e-commerce provides tailwinds for Akamai's business. Akamai also has an attractive valuation priced at just about 18.5 times forward earnings. Freeman says EPS will grow to $6.32 in 2022. CFRA has a "buy" rating and $125 price target for AKAM stock.
KLA Corp. (KLAC)
KLA is a global leader in semiconductor yield monitoring and process control systems. Zino says both yield management and process control are attractive long-term growth opportunities. Zino is also bullish on KLA's expanding margins and is projecting EPS will grow from $7.70 in 2020 to $12.13 in 2021. He is anticipating the semiconductor industry's transition to lower nanometer loads will create a range of yield and defect issues, which will drive demand for KLA's products. The stock's forward earnings multiple is just 22.5. CFRA has a "buy" rating and $219 price target for KLAC stock.
FleetCor Technologies (FLT)
FleetCor Technologies provides fuel cards and workforce payment products that help businesses manage and make payments. Holt says FleetCor is a great industrial rebound play, and accounts payable automation will be an excellent long-term growth driver for the stock. Shelter-in-place orders weighed on FleetCor's revenue growth in 2020, but Holt is projecting 12.5% revenue growth and at least $1 billion in free cash flow in 2021. Holt says the company has a healthy balance sheet, and the stock trades at just 21.6 times forward earnings estimates. CFRA has a "buy" rating and $275 price target for FLT stock.
Buy these undervalued tech stocks:
-- IBM (IBM)
-- Cisco Systems (CSCO)
-- Skyworks Solutions (SWKS)
-- Qualcomm (QCOM)
-- Akamai Technologies (AKAM)
-- KLA Corp. (KLAC)
-- FleetCor Technologies (FLT)