Who doesn’t like buying a quality product at a discount? We all do it, some of us go looking for it, and it’s made fodder for comedians, well, just about forever. It’s only logical, after all, to buy cheap when you can. That holds true in the stock markets, too. The old cliché of ‘buy low and sell high’ remains a basic truth of the market. The only trick is finding the right stocks to buy low.
Right now, Wall Street is watching the tech sector intently – these stocks are showing both discounted prices and high mid- to long-term potential. It’s an unusual situation. While markets trended upwards through most of 2021, they’ve experience a sell-off since early September.
There are numerous headwinds pushing against the market, and against tech. Bond yields are starting to rise, inflationary pressures hold the threat of reduced consumer spending, the West Coast pile-up of container ships promises continued supply chain disruptions, and we don’t really know what the coronavirus is going to do in coming months.
Writing from Wedbush, 5-star analyst Daniel Ives says of the situation: “Tech names continue to be under pressure as Street worries around rising yields and growth stock valuations being stretched have caused a major sell off in the tech sector over the last month.”
But longer term, Ives remains optimistic that the tech sector will bring the returns that investors seek.
“[We] focus on the $2 trillion digital transformation opportunity across the enterprise and consumer ecosystem over the coming years that is on tech’s doorstep. While the valuation debate will continue to be front and center in a rising rate environment, we fundamentally believe the Street is massively underestimating what the tech growth picture looks like into 2022 and thus remain a core tenet of our unwavering tech bull thesis with this another pound the table moment to own tech stocks,” Ives added.
Wall Street’s analysts would seem to agree with the Wedbush view; they’ve picked up on tech stocks that are down for now, but not out. We’ve used the TipRanks database to sift through the analysts’ recent recommendations, to find three that give a flavor the current state of tech and the Street’s outlook. All three are Strong Buy stocks that have seen steep price depreciation – but in these cases, the analysts see the low price as a gateway.
Bandwidth, Inc. (BAND)
We’ll start with Bandwidth, a VoIP system provider. Bandwidth offers a leading cloud-based voice communication app, and counts major communications enterprises like Cisco, RingCentral, and Zoom among its client companies. To ensure connectivity, Bandwidth has built and maintains its own voice over internet network.
Like many tech firms, Bandwidth runs a quarterly loss – but its revenue in Q2, the last reported, was up 57% year-over-year, to $120.7 million. The gain was driven by the CPaaS segment, which saw a yoy increase of 57%. The company’s other segments saw lower growth. The quarterly net loss moderated from 86 cents per share in 2Q20 to 28 cents in 2Q21.
Late last year, Bandwidth acquired Voxbone, a European cloud-based communications competitor. The 446 million Euro deal was conducted in 80% stock and the remainder in cash. At current exchange rates, the acquisition would be worth $517 million.
Despite its successful M&A activity, and its clear applicability in a time of increased remote work, Bandwidth has seen its shares fall
52% over the past 12 months.
That hasn’t stopped Canaccord 5-star analyst Michael Walkley from giving BAND shares a thumbs up. Walkley rates BAND a Buy and his $210 price target indicates room for 147% upside in the year ahead. (To watch Walkley’s track record, click here)
“We believe Bandwidth is a long-term beneficiary of the elevated levels of remote work and digital transformation evidenced by increasing customer usage of their platform in addition to strong new customer growth. With numerous catalysts including increasing international traffic, an accretive Voxbone acquisition to drive international growth, a small but fast-growing messaging business, and a large new cohort of customers, we believe our estimates could prove conservative,” the analyst opined.
Walkley added, “Bandwidth’s financial metrics and outlook have continuously improved since Q3/19, which we believe supports a higher forward revenue multiple. With continued execution and the combination of accelerating growth and expanding margins, we believe there is ample opportunity for the stock to continue to re-rate higher.”
Evidently, Walkley’s colleagues also think Bandwidth is well-positioned to deliver. The stock has a Strong Buy consensus rating, based 9 Buys and 3 Holds. The forecast is for one-year gains of ~102%, given the average price target currently stands at $171.27. (See BAND stock analysis on TipRanks)
Next up, JFrog, is a software developer with a unique twist on its niche. JFrog is a leader in ‘continuous updates,’ which keep the installed software up-to-date invisibly, without intruding on the user. JFrog offers software products repository management, dev ops, security, and distribution, and has set the global standard in automated release and update management.
This company has over a decade of experience, but has only been public for one year. JFrog held its IPO in July of 2020, and raised over…
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