(0:30) - Finding Strong Value Stocks Within The Tech Industry (5:10) - Tracey’s Top Stock Picks (24:45) - Episode Roundup: FLEX, ACMR, DBX, PERI, MITK Podcast@Zacks.com
Welcome to Episode #307 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks
Value Investor portfolio, shares some of her top value investing tips and stock picks.
Stocks have sold off in 2022, with technology stocks being some of the worst performers. At the start of the year, the sector was still expensive on a P/E basis. But now, with the NASDAQ falling 28% year-to-date, some tech stocks look cheap.
But should you buy just any cheap tech stock or should you look for other good fundamentals, like rising earnings estimates?
How to Screen for High Quality Cheap Tech Stocks
Anyone could screen for stocks in the Computer & Technology sector on Zacks.com’s screening tool, and throw on a forward P/E under 15 to find “cheap” stocks.
You could also add on average daily trading volume over 100,000 shares, just to keep out the micro-stocks and other riff-raff.
But the key to finding high quality technology stocks in 2022 is the Zacks Rank. It’s the investor’s secret weapon this year because a high Zacks Rank of #1 (Strong Buy) or #2 (Buy) indicates that that analysts are raising earnings estimates.
Who has rising earnings estimates with these market conditions?
At a time when there are more analysts cutting their earnings estimates on tech companies than raising them, this is a great way to screen for companies with something good going on.
Running this screen returned just 16 stocks.
5 High Quality Tech Stocks 1. Flex Ltd. ( FLEX Quick Quote FLEX - Free Report)
Flex helps brands design, build and deliver innovative products. It’s been in business for more than 50 years and used to be called Flextronics.
Shares of Flex are actually up on the year, gaining 14.4%. But it’s still cheap, trading with a forward P/E of just 9.1.
Flex’s earnings are expected to rise 16.3% this fiscal year and another 5.9% next year, bucking the trend of declining earnings.
Should Flex be on your short list?
2. ACM Research ( ACMR Quick Quote ACMR - Free Report)
ACM Research develops wet processing technology and products for the semiconductor industry. ACM Research has a facility in Shanghai, so it has felt the impacts of China’s zero covid policy and the lockdowns.
Shares of ACM Research have plunged 69% year-to-date but it’s cheap, with a forward P/E of just 11.8.
But analysts expect earnings for 2023 to fall by 23% from 2022, which are forecast to rise by 13.9%.
ACM Research also lowered the upper end of its 2022 guidance recently to reflect the impacts of the new US trade policies and continuing supply chain constraints.
Is ACM Research a value gem or is it still too risky to dive in?
3. Dropbox, Inc. ( DBX Quick Quote DBX - Free Report)
Dropbox is a global collaboration platform with 700 million registered users. In the third quarter, Dropbox grew revenue by 7.4% year-over-year as free cash flow also rose.
Dropbox has $1.45 billion cash on hand as of the end of the third quarter and has a massive $1.2 billion share buyback program.
Shares of Dropbox are down in 2022, but only 8% compared to the NASDAQ which is down 28%. It’s cheap, with a forward P/E of just 14.2.
Is Dropbox a tech stock to hide out in in 2023?
4. Perion Network ( PERI Quick Quote PERI - Free Report)
Perion Network is a small cap global advertising company with a Zacks Rank of #1 (Strong Buy). Who would want to buy an advertising tech company with these marketing conditions?
But on Nov 9, Perion Network reported its third quarter results and raised full year revenue guidance.
Earnings of Perion Network are expected to jump 115% in 2022 and another 5.5% in 2023. The Zacks Rank has uncovered a good story.
Shares are not down, but are up, year-to-date, rising about 10%.
With a forward P/E of just 11.9, should investors take a chance on Perion Network?
5. Mitek Systems ( MITK Quick Quote MITK - Free Report)
Mitek Systems operates in mobile capture and offers digital identity verification solutions. In the third quarter, Mitek Systems launched MiVIP, the Mitek Verified Identity Platform.
Shares of Mitek Systems have fallen 39% year-to-date and are cheap with a forward P/E of 11.5.
Earnings of Mitek Systems are expected to rise 17.1% in fiscal 2022 and another 3.1% in fiscal 2023. But it hasn’t reported fiscal fourth quarter results yet so investors may want to wait to see if there are any surprises in that report.
Should Mitek Systems be on your short list?
What Else Should You Know About Screening for Cheap Tech Stocks?
Tune into this week’s podcast to find out.