Tech stocks have been the big winner since the March bottom. They’ve seen revenues accelerate and their stock prices soar as they were big winners of the digital economy’s growth due to the economic shutdown.
The ability of tech stocks to capitalize on changes in economic activity is evident from the 75% gain of the Vanguard Information Technology Index Fund ETF’s (VGT) since the market crash in March. Moreover, the essential nature of technology amid the pandemic has made tech stocks the “new defensive plays.”
Entering September, it wouldn’t be surprising if tech stocks continued to outperform. The coronavirus crisis is far from over, and some believe the winter weather may necessitate further lockdowns. Also, slowing growth and falling interest rates have been translating into higher multiples for industries with growth potential.
Here are the four tech stocks that have huge upside potential left because of their strong fundamentals: Dell Technologies Inc (DELL – Rated “A” – Strong Buy), Cadence Design Systems, Inc. (CDNS), Roku, Inc. (ROKU – Rated “A” – Strong Buy), and Sapiens International Corporation (SPNS – Rated “A” – Strong Buy).
Dell Technologies Inc (DELL)
DELL designs, develops, manufactures, and supports IT hardware, software, and services solutions worldwide. It operates through three segments – Infrastructure Solutions Group (ISG), Client Solutions Group (CSG), and VMware.
DELL currently holds 81% equity ownership interest in VMware, which is valued at more than the parent company itself. DELL has recently announced that it is planning a spin-off of this stake, which could increase the valuation of DELL by billions. This deal is expected to create additional long-term enterprise value and help DELL achieve investment-grade credit. Scheduled for September 2021, this deal is timed to limit the federal income taxation applicable, allowing DELL to retain its earnings.
The company reported a top-line of $22.73 billion for its fiscal second quarter ended July 2020. DELL’s operating income increased 119% year-over-year to $1.1 billion. The quarter witnessed strength in the government sector and education, with orders rising 16% and 24%, respectively, as parents and teachers prepared for a new frontier in virtual learning. The company generated $3.3 billion as cash from operating activities.
The company reported an EPS of $1.92 for the quarter, delivering an earnings surprise of 38.1%. Moreover, DELL has beaten EPS estimates in three of the trailing four quarters. EPS is expected to grow by 8.1% next year.
DELL closed yesterday’s trading session at $66.08, gaining 28.6% year-to-date. The stock has recently hit an all-time high of $67.62 and has gained more than 33% in the last three months.
How does DELL stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
A for Industry Rank
A for Overall POWR Rating
You can’t ask for better. DELL is also ranked #2 out of 28 stocks in the Technology – Hardware industry.
Cadence Design Systems, Inc. (CDNS)
CDNS provides software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. The company offers functional verification services, including emulation and prototyping hardware through three platforms – JasperGold, Xcelium, and Palladium.
CDNS has recently announced the certification of the Cadence tools in Taiwan Semiconductor Manufacturing Company’s (TSMC) reference flows for advanced packaging solutions. The collaboration will enable customers to accelerate productivity through streamlined design, analysis, and verification reference flows. The recent availability of its silicon-proven Cadence UltraLink D2D PHY IP on the TSMC N7 process is also an important milestone for high-speed, advanced IP. Furthermore, the company has collaborated with Microsoft Corporation (MSFT) to reduce semiconductor design signoff schedules on the cloud.
CDNS’ net revenues grew 10% year-over-year to $638 million in the second quarter ended June 2020. Its income from operations of
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