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Facebook, Uber Fiasco Still Bugging? Buy 5 Value Tech Stocks

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It seems that this isn’t the best of times for Facebook, Inc. and Uber. And the markets have reacted sharply with tech stocks taking a hit. While the social media platform has been embroiled in a data misuse scandal accounting for the breach of personal data of millions of users, the world saw its first casualty by a driverless car in Arizona, when a pedestrian was run over by an Uber vehicle.

Tech stocks have seen a decline over the week with Facebook at the helm of the carnage. The social media giant’s shares fell nearly 7% on Monday, making it the worst performing stock on the S&P 500. Meanwhile, analysts are of the opinion that tech stocks are most overvalued relative to the market since 2009. While it’s a bit too early to predict if shares of Facebook and other tech giants will further decline, it makes good sense to pick up great value stocks while the market stays volatile.

Facebook, Uber Rattle Tech Stocks

On Mar 19, 28-year-old data scientist Chris Wylie, provided whistleblower accounts about Cambridge Analytica, a consultancy that was hired for President Donald Trump’s campaign. Wylie, who worked for Cambridge Analytica, alleged that the firm harvested data from more than 50 million Facebook accounts without the consent of the users. The allegations were enough to break the trust of millions of users who started deleting their Facebook accounts, resulting in the company’s shares taking a hit. Facebook lost about $50 billion of market value over the next two days.

Moreover, Facebook’s scandal has taken the shape of a global controversy with Germany’s justice minister Katarina Barley reportedly summoning Facebook to clarify if the personal data of 30 million Facebook users in that country were protected from unlawful use by third parties. Brazil too has started an investigation if Cambridge Analytica acted illegally there too. And India’s IT minister said that the government is ready to launch an enquiry to see if Facebook had any role to play in unfairly influencing election in that country. If required, India will summon Zuckerberg.

On the other hand, Uber’s driverless car, which struck down a pedestrian in Arizona, has raised questions about the credibility and future of autonomous vehicles. The recent incident has raised doubts in the minds of people if the world is still ready for driverless cars. A number of other tech and auto giants like Alphabet Inc. (GOOGL - Free Report) , General Motors Co. (GM - Free Report) and Baidu are pumping in billions of dollars to develop autonomous-vehicle technology.

However, after the accident at Tempe, AZ analysts are apprehensive that testing at Alphabet’s Waymo unit, which is worth $70 billion, could slow and delay commercialization of autonomous vehicles. The recent loss of trust in both Facebook and Uber was enough to see tech stocks plummet and unsettle investors. Also, other tech stocks like Apple, Inc. (AAPL - Free Report) declined 2.3% on Wednesday, while Alphabet  dipped 0.6%, thus affecting the overall tech sector.

Tech Stocks Are Most Overvalued

Technology stocks are trading at an 11% valuation premium to the broader market, the highest since 2009, according to Bank of America Merrill Lynch strategists. Meanwhile, the valuation of the S&P 500 is at its lowest level since late 2016, with the recent decline in stocks. Moreover, the S&P technology sector has increased 7.6% year to date compared with the S&P 500’s rise of 1.5%.

The primary reason for this is that technology stocks have outperformed the broader market both last year and this year, and its price gains have outpaced earnings growth. Strategists at Bank of America Merrill Lynch also said that with the recent decline in share prices, the valuation of S&P 500 stocks has fallen to a level last witnessed in 2016. Given this scenario, it is always wise to buy stocks on the dip, as technology is an overweight sector.

Our Choices

Facebook’s recent data misuse scandal coupled with Uber’s driverless car accident has seen tech stocks plunging. Shares of other tech giants like Apple and Alphabet too have seen a decline in the last few days.

Overall, it’s too early to predict how the tech sector will perform in the days to come. As it is, the sector remains overvalued given that price increases continue to overshoot earnings growth. Given this scenario, it makes sense to identify value stocks that that could prove to be lucrative going forward. Our selection is also backed by a good Value Score and a Zacks Rank #1 (Strong Buy) and 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

We narrowed down our choices with the help of our new Style Score System.

Our research shows that stocks with a Value Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value-investing space.

Kulicke and Soffa Industries, Inc. (KLIC - Free Report) is a leading provider of semiconductor packaging and electronic assembly solutions supporting the global automotive, consumer, communications, computing and industrial segments. Kulicke and Soffa has a Zacks Rank #1 and Value Score of B. The forward price-to-earnings ratio (P/E) for the current financial year (F1) 12.1, lower than the industry average of 21.2. It has a PEG ratio of 1.01, lower than the industry average of 1.83.

Lam Research Corporation (LRCX - Free Report) enables its customers to shape the future of technology by providing market-leading equipment and services for semiconductor wafer processing.  Lam Research has a Zacks Rank #1 and Value Score of B. Its P/E ratio for the current financial year (F1) is 13.4, lower than the industry average of 13.9. It has a PEG ratio of 0.90, lower than the industry average of 1.32.

Super Micro Computer, Inc. (SMCI - Free Report) designs, develops, manufactures and sells energy-efficient, application optimized server solutions based on the x86 architecture.  Super Micro Computer has a Zacks Rank #1 and Value Score of A. Its P/E ratio for the current financial year (F1) is 11.3, lower than the industry average of 15.5. It has a PEG ratio of 0.81, lower than the industry average of 1.28.

Seagate Technology PLC (STX - Free Report) offers a portfolio of hard disc drives, solid state drives and solid state hybrid drives.  Seagate Technology has a Zacks Rank #1 and Value Score of A. Its P/E ratio for the current financial year (F1) is 12.3, lower than the industry average of 15.5. It has a PEG ratio of 0.79, lower than the industry average of 1.28.

Arrow Electronics, Inc. (ARW - Free Report)  is the world's largest distributor of electronic components and computer products to industrial and commercial customers. Arrow Electronics has a Zacks Rank #2 and Value Score of A. Its P/E ratio for the current financial year (F1) is 9.3, lower than the industry average of 12.5. It has a PEG ratio of 0.93, lower than the industry average of 1.32.

Zacks Editor-in-Chief Goes "All In" on This Stock

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