By: Sidharath Gupta
When the pandemic shuttered the global economy and inflicted widespread damage, many investors correctly assessed that the technology sector would be the least affected and best-positioned to capitalize.
Businesses and individuals became more dependent on technology for shopping, work, and education. This has been further confirmed by the earnings reports of tech companies which validated the sharp gains in their stock prices.
There have been challenges like supply chain disruptions and concerns that the weak economy will negatively affect corporate budgets, but other trends like remote working and growth in cloud computing have overwhelmed any weakness.
Though disruptions to the supply chain due to the pandemic have been affecting some tech players, the trend to work remotely and more dependence on cloud platforms in the “new normal” has been helping most of the technology companies thrive.
This is evident from the tech-heavy Nasdaq Composite’s gain of more than 55% from its March lows versus the Dow Jones Industrial Average’s gain of more about 40% and the S&P 500’s returns of about 45%.
While the stocks of most of the technology companies that are thriving amid the pandemic have already skyrocketed, the following four stocks are still trading at affordable prices and should keep moving higher in the “new normal”: Infosys Limited (INFY), Wipro Limited (WIT), Digital Turbine, Inc. (APPS) and MobileIron, Inc. (MOBL).
Infosys Limited (INFY)
Headquartered in India, INFY is one of the most popular technology services outsourcing stocks. The company provides consulting, technology, outsourcing, and next-generation digital services in North America, Europe, India, and internationally. The stock has been rising since hitting its 52-week low on March 23rd due to the pandemic-led market crash and now hitting fresh 52-week highs almost every day. The stock has gained more than 80% from its March lows.
With the acquisition of Simplus in March 2020, INFY elevated its position as an end-to-end Salesforce enterprise cloud solutions and services provider.
INFY’s fiscal first-quarter results impressed the market. The company delivered an operating margin of 22.7% amid the pandemic. While total revenues grew 1.5% year over year in constant currency, digital revenues (44.5% of total revenues) increased 25.5% year over year in constant currency. Moreover, INFY’s free cash flow grew 50.1% year over year to $728 million. The company projects operating margin for fiscal 2021 in the range of 21%-23%.
The market expects INFY’s EPS to grow 10.9% next year and 8% per year in the next 5 years. INFY is currently trading at $12.85.
How does INFY stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
A for Overall POWR Rating
You can’t ask for better. The stock is also ranked #2 out of 14 stocks in the Outsourcing – Tech Services industry.
Wipro Limited (WIT)
WIT is a tech giant for cognitive computing and cloud analytics. It operates in information technology (IT), consulting, and business process services (BPS) company worldwide, serving clients across six continents. WIT has not only recovered more than 70% from its $2.52 low in late March, but it is also making new highs almost each trading day.
The stock has witnessed a roaring up move after the company announced the acquisition of 4C, a leading Salesforce multi-cloud partner in EMEA. WIT also upgraded its digital transformation strategy in July with Google Cloud, aiming to achieve greater operational efficiency.
The last earnings report for the June quarter has been appealing as gross revenue grew 1.3% year over year and the offshore revenue mix stood at 48.5%. The operating profit grew by 6.2% while the EPS grew 5.7%, both year over year. Further, the reported EPS met the Street estimates in 3 of the trailing four quarters. The stock closed 1.17% up at $4.32 on July 31.
It’s no surprise that WIT is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade and Peer Grade, and a “B” for Industry Rank. In the 14-stock Outsourcing – Tech Services industry, it is ranked #4.
Digital Turbine, Inc. (APPS)
APPS provides unique software platforms and solutions for mobile operators and advertisers. Its technology platform has been adopted by more than 40 mobile operators and OEMs. The stock has popped 310% in an interval as short as 4 months — from a low of $3.48 on March 18th to a high $14.27 hit on July 31st.
APPS is positioned for both revenue growth and margin growth as the pandemic has contributed significantly to its primary business of brokering advertisements on smartphones. The Street is expecting the company to report strong numbers this week. The consensus EPS estimate for the quarter is $0.09, which indicates an 80% increase year over year. The revenue estimate of $48.56 million indicates an increase of 71.6% over the year-ago number. APPS also beat the Street EPS estimates in three of the trailing four quarters.
Year to date, APPS has gained 94.7% and on July 31st it closed at $13.88.
As per our POWR Ratings, APPS is a “Strong buyBuy”. It holds an “A” in Trade Grade, Buy & Hold Grade, and Industry Rank. It is currently ranked #21 out of 82 stocks in the Software – Application Industry.
MobileIron, Inc. (MOBL)
MOBL is a uniquely positioned mobile management service provider, which is defining the future of secure mobility. The new normal brings with it an increasingly complex set of security demands and MOBL’s comprehensive set of offerings are inclined to meet these challenges.
MOBL’s massive earnings beat for the last quarter ended June pleased investors. The company delivered an EPS surprise of 233.3%. Revenue was $58.9 million, up 16% year over year while Annual Recurring Revenue (ARR) was up 9% year over year to $187.1 million. Operating income stood 9.4% of revenues. The company also received 3 new US patents for mobile security during the quarter.
3 new US patents for mobile security during the quarter.
ARR is further expected to grow between 9% and 11% by fiscal year-end, compared to the end of fiscal 2019, and MOBL is estimated to grow 54.5% next year.
The stock is currently trading at $6.23, 20% below its 52-week high of $7.79. MOBL had hit a 52-week low of $2.94 on March 16th and it is already 111.9% up.
Our POWR Ratings give it a “Buy” with “A” in Trade Grade and Industry Rank. It is ranked #32 out of 82 stocks in the Software – Application Industry.