The market finally bounced back after a few rough days. The Nasdaq composite index finished the day up 2.7%, and the S&P 500 index gained 2%.
However, the market is still a ways away from their all-time highs. The Nasdaq was actually in correction territory as it was down over 10% from the September 2nd close through yesterday’s close. On Thursday, the S&P 500 had its worst trading day in over five months. The four-day drop can be attributed to profit-taking after five months of soaring prices.
Even after today’s gains, the drop in the market allows us to grab tech stocks at a better valuation. In fact, some tech stocks are trading at extremely attractive valuations. These companies have been overlooked by the market and provide more potential for capital appreciation.
There are three metrics I use to evaluate stocks. The first is the well-known price- to-earnings ratio (P/E). I look for stocks with a P/E of around fifteen or below. The second metric is the enterprise multiple, or EV/EBITDA ratio. This valuation ratio compares a company’s enterprise value (EV) to its earnings before interest, taxes, depreciation, and amortization (EBITDA). I typically look for EV/EBITDA of around ten or under. The last metric, which is my favorite, is the free cash flow yield, which measures a company’s free cash flow to its price. I look for a free cash flow yield of over 7%.
Canadian Solar (CSIQ)
CSIQ is a Canadian solar power company. The company is an integrated provider of solar power products, services, and system solutions. It engages in designing, developing, and manufacturing solar ingots, wafers, cells, modules, and other solar power products. CSIQ operates through two business segments: the MSS segment and the Energy segment. The MSS segment involves the design, development, manufacturing, and sale of solar power products, and its Energy segment consists of solar power project development. The majority of the company’s revenue comes from the MSS segment.
The company caters to a geographically-diverse customer base spread across the United States, China, Japan, the U.K., and Canada. It has also established a footprint in emerging markets like Brazil and India and expanded its global late-stage project pipeline into nations like Argentina, Australia, and South Korea. CSIQ has a strong pipeline of projects and carries out various acquisitions to consolidate its position.
CSIQ currently has a free cash flow yield of 16.4%, a P/E ratio of 7.3, and an EV/EBITDA of 10.4, all reflecting its low valuation. The stock is currently rated a “Strong Buy” in our POWR Ratings system. It has a grade of “A” for Trade Grade and Peer Grade, and a “B” for “Buy & Hold Grade.” These are three of the four components that make up the POWR Ratings. It is also the #1 ranked stock in the Solar industry.
I believe the company is well-positioned to benefit in the years ahead. The company recently announced it would list its Module and Systems Solutions business on China’s stock market. This should provide more access to capital. It will also help the company become more of an energy provider. This will mean more recurring-based revenue.
Cisco Systems (CSCO)
CSCO is the world’s largest hardware and software supplier within the networking solutions sector. Its infrastructure platforms group includes hardware and software products for switching, routing, data center, and wireless applications. Its applications portfolio contains collaboration, analytics, and Internet of Things (IoT) products. The company’s security segment includes Cisco’s firewall and software-defined security products. CSCO’s fourth business segment is…
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