Yahoo Finance 4 Oversold High-Quality Tech Picks Amid Market Volatility
The broader equity market has been witnessing high volatility since the beginning of 2022, with major U.S. indexes, including the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 plunging 14.8%, 26.2% and 18.2%, respectively, year to date (YTD).
The wild swings in the equity market have been triggered by concerns over inflation and rising interest rates. The ongoing Russia-Ukraine war has further increased worries for investors about the global economic recovery.
Technology is among the most-battered sectors amid a broader market sell-off this year so far. Technology Select Sector SPDR Fund, which seeks to provide investment results that, before expenses, generally correspond to the price and yield performance of the Technology Select Sector Index, has lost approximately 25% of its value YTD.
However, this sell-off in the broader equity market has led to a massive correction in several technology companies’ stock prices. These companies were considered to be widely overvalued at the sector’s peak in 2021. With this correction, several tech stocks are currently trading way below their 52-week high and at an attractive valuation as well, despite their strong fundamentals.
In our opinion, Synopsys, Inc. SNPS, Cadence Design Systems, Inc. CDNS, Fortinet, Inc. FTNT and Monolithic Power Systems, Inc. MPWR are among the most beaten-down stocks in the technology space. Given the strength of their fundamentals and solid prospects, it seems wise to add these stocks to your portfolio.
Why Invest in These Oversold Stocks?
Amid the financial instability, it is a prudent idea to pick solid growth companies as these are financially stable, accruing profits in established markets. These stocks, with their solid fundamentals, allow investors to hedge their funds from any economic downturn. Moreover, these fundamentally strong stocks are likely to outshine again once the current macro headwinds subside and market sentiments improve.
Apart from having solid fundamentals, the long-term earnings growth rate for the aforementioned stocks is more than 10%. These stocks also have a favorable combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy).
Per Zacks’ proprietary methodology, stocks with such a favorable combination offer solid investment opportunities.
Additionally, these stocks are currently trading way below their 52-week high and are now available at attractive valuations.
Our Picks
Synopsys is a vendor of electronic design automation (EDA) software to the semiconductor and electronics industries. It is benefiting from strong design wins due to a robust product portfolio.
The growing hybrid working trend is driving the demand for higher bandwidth. The increasing clout of AI, 5G and advanced driver-assistance systems chip-set is fueling the demand for computational software tools, which favor Synopsys’ prospects. Given the company’s capability to cater to the growing complex design requirements of customers, we believe SNPS is well-poised to capitalize on this opportunity.
SNPS currently carries a Zacks Rank #2 and has a Growth Score of B. Shares of the company have plunged 14.3% YTD and currently trade 19.2% lower than its 52-week high of $391.17 attained on Aug 15, 2022. Moreover, the stock trades at a one-year forward price-to-earnings of 31.42X compared with its five-year average of 42.28X. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Synopsys’ fiscal 2022 earnings has improved to $8.84 per share from $8.47 over the past 30 days, implying a year-over-year increase of 29.2%. For fiscal 2023, the consensus mark for earnings has been revised upward by 4.5% to $10.23 per share over the past 30 days, indicating year-over-year growth of 15.6%. The long-term earnings growth rate for the stock is pegged at 16.2%.
Synopsys, Inc. Price and Consensus
Synopsys, Inc. price-consensus-chart | Synopsys, Inc. Quote
Cadence Design Systems offers products and tools that help customers to design electronic products. The company’s performance is gaining from continued strength across all segments owing to healthy demand for its diversified product portfolio.
Frequent product launches and synergies from acquisitions are expected to help Cadence Design Systems sustain top-line growth. It recently acquired OpenEye Scientific Software, which is expected to improve revenues by approximately $40 million in fiscal 2023 as well as expand the company’s reach in pharmaceutical and biotechnology markets. The company’s Palladium and Protium platforms are gaining traction among clients in the hyperscale, AI/ML and server customers.
CDNS currently carries a Zacks Rank #2 and has a Growth Score of B. Shares of the company have plunged 12.5% YTD and currently trade 16.4% lower than its 52-week high of $194.97 attained on Aug 16. Moreover, the stock trades at a one-year forward price-to-earnings of 37.07X compared with its five-year average of 46.24X.
The Zacks Consensus Estimate for Cadence Design Systems’ 2022 earnings has improved to $4.11 per share from $3.89 over the past 60 days, indicating a year-over-year increase of 24.9%. For 2023, the consensus mark for earnings has been revised upward by 5.1% to $4.50 per share over the past 60 days, suggesting year-over-year growth of 9.4%. The long-term earnings growth rate for the stock is pegged at 17.7%.
Cadence Design Systems, Inc. Price and Consensus
Cadence Design Systems, Inc. price-consensus-chart | Cadence Design Systems, Inc. Quote
Fortinet is a provider of network security appliances and Unified Threat Management (UTM) network security solutions to enterprises, service providers and government entities worldwide. Its solutions are designed to integrate multiple levels of security protection, including firewall, virtual private networking, antivirus, intrusion prevention, web filtering, anti-spam and wide area network (WAN) acceleration.
Fortinet is benefiting from rising demand for security and networking products amid the growing hybrid working trend. It is also benefiting from robust growth in Fortinet Security Fabric, cloud and Software-defined Wide Area Network (SD-WAN) offerings. Moreover, continued deal wins, especially those of high value, are a key driver. Higher IT spending on cybersecurity is further expected to aid Fortinet to grow faster than the security market. Also, focus on enhancing its UTM portfolio through product development and acquisitions is a tailwind for Fortinet.
FTNT currently carries a Zacks Rank #2 and has a Growth Score of A. Shares of the company have plunged 29.3% YTD and currently trade 31.6% lower than its 52-week high of $74.35 attained on Dec 29, 2021. Moreover, the stock trades at a one-year forward price-to-earnings of 41.56X compared with its five-year average of 67.24X.
The Zacks Consensus Estimate for Fortinet’s 2022 earnings has improved a penny to $1.05 per share over the past 30 days, suggesting a year-over-year increase of 31.3%. For 2023, the consensus mark for earnings has been revised upward by a penny to $1.29 per share over the past 30 days, indicating year-over-year growth of 23.4%. The long-term earnings growth rate for the stock is pegged at 18%.
Fortinet, Inc. Price and Consensus
Fortinet, Inc. price-consensus-chart | Fortinet, Inc. Quote
Monolithic Power designs, develops and markets high-performance power solutions. The company focuses on the market for high-performance analog and mixed-signal integrated circuits. It is benefiting from solid demand across the automotive, industrial, computing and storage, and communications markets.
Monolithic Power is on track to expand capacity in 2022 well beyond $2 billion, which will ramp up new product revenues. It is likely to gain from the rapid deployment of 5G on the back of a robust portfolio of legacy routers, wireless applications and 5G networking infrastructure-related products.
Further, the company is witnessing sales growth in infotainment, lighting and Advanced Driver Assistance Systems products in the automotive market, which is a positive. Moreover, MPWR’s deep-rooted partnerships with leading auto suppliers are expected to continue driving its top line in the days ahead.
MPWR currently carries a Zacks Rank #2 and has a Growth Score of B. Shares of the company have plunged 15.2% YTD and are currently trading 27.8% lower than its 52-week high of $580 attained on Nov 22, 2021. Moreover, the stock trades at a one-year forward price-to-earnings of 30.29X compared with its five-year average of 50.07X.
The Zacks Consensus Estimate for Monolithic Power’s 2022 earnings has improved by 8.2% to $12.56 per share over the past 60 days, implying a year-over-year increase of 68.6%. For 2023, the consensus mark for earnings has been revised upward by 5.3% to $14.35 per share over the past 60 days, indicating year-over-year growth of 14.3%. The long-term earnings growth rate for the stock is pegged at 25%.
Monolithic Power Systems, Inc. Price and Consensus
Monolithic Power Systems, Inc. price-consensus-chart | Monolithic Power Systems, Inc. Quote
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