Second-quarter calendar year 2021 earnings season is mostly now in the books, and technology companies around the globe continue to be the engine of the economy. Revenue and profits are growing near record paces and showing little sign of slowing anytime soon. Lots of investment returns can still be had for those with a long-term mindset.
If you’re looking for a place to invest some spare cash right now, three Fool contributors think Western Digital (NASDAQ:WDC), Aspen Technology (NASDAQ:AZPN), and Alibaba Group Holding (NYSE:BABA) are worth a look right now. Here’s why.
This storage giant is cheap and in talks for a transformative merger
Billy Duberstein (Western Digital): Shares of storage player Western Digital are down about 20% from recent highs, and nearly 50% from all-time highs set back in early 2018. That was before the onset of the U.S.-China trade war caused a memory and storage pricing crash, from which Western Digital has never recovered. Western Digital even cut its dividend in May 2020, during the onset of the COVID-19 pandemic, and just when new CEO David Goeckeler came on the job, giving the company a fresh start.
Yet coming out of the pandemic, Western Digital has been doing pretty well under Goeckeler. Last quarter, revenue rose 14% to $4.9 billion, and adjusted earnings per share rose to $2.16, beating expectations by a rather sizable $0.66. Management also guided for sequential growth, to between $4.9 billion and $5.1 billion in revenue and adjusted EPS of $2.25 to $2.55. The digitization of the economy is spurring strong demand across Western Digital’s hard disk and NAND flash products, with each segment seeing revenue growth and gross margin expansion last quarter.
Based on those solid results, Western Digital trades at just over six times average forward earnings estimates, and only five times the most optimistic analyst forecast. Of course, the stock is this cheap because its business has traditionally been extremely cyclical, especially the NAND segment, resulting in losses when a downcycle hits the industry.
But there could be good news coming in the NAND world. The Wall Street Journal recently reported that Western Digital was in advanced talks to merge with privately held Kioxia, another large player in the NAND and HDD businesses. Western Digital already has a strategic partnership with Kioxia, so merging would make a lot of sense.
Should the merger go through — still a big if, as regulatory hurdles remain in both Japan and China — the NAND industry will consolidate from six players last year to just four main players, following SK Hynix’s acquisition of Intel‘s NAND business, which was agreed to last fall.
The more consolidated DRAM and HDD industries have been able to maintain higher profitability through cycles than the NAND players, due to larger scale and less competition. Should the NAND business go down to just four players outside China, it could lead to structurally higher profits going forward. Western Digital’s stock seems cheap enough to buy even without that scenario, but the stock could go much higher should the merger happen.
Here’s a direct bet on stronger industrial operating budgets
Anders Bylund (Aspen Technology): Industrial asset optimization may not sound like much of a party, but Aspen Technology is making that market look downright exciting.
AspenTech’s software helps its customers produce fuels, engineered materials, and chemicals more efficiently. These tools are difficult to replace once your company has gotten used to tweaking its production processes with AspenTech’s tools. These tools are based on AspenTech’s 40 years of engineering analytics experience and boosted by a powerful hub of artificial intelligence and Internet of Things assets.
Two weeks ago, in the most recent earnings call, AspenTech CEO Antonio Pietri highlighted how one Japanese client reduced carbon dioxide emissions by 160,000 metric tons per year thanks to a successful supply chain analysis. In another example, a global mining giant signed an AspenTech contract worth $3 million a year to boost the safety and sustainability of this customer’s operations.
Customer interest in AspenTech’s software is…
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