A confluence of economic and political factors exacerbated the tech stock rout last month. An impending 50-basis-point interest rate hike this month, coupled with a weak earnings season for various big tech companies, is expected to keep tech stocks under pressure in the near term.
Despite the risk-off environment, several tech stocks have maintained strong balance sheets, attractive valuations, and positive analyst sentiments. Furthermore, the recent tech sell-off provides a golden opportunity to invest in quality tech stocks at a discount. Given their impressive growth attributes, we think it could be wise to invest in high-quality tech stocks GoDaddy Inc. (GDDY) and International Business Machines Corporation (IBM).
Conversely, there are various tech stocks that do not possess the requisite fundamentals to endure the volatile market condition. So, we believe fundamentally weak tech stocks Robinhood Markets, Inc. (HOOD) and PagSeguro Digital Ltd. (PAGS) are best avoided considering their limited growth and weak financials.
Stocks to Buy:
GoDaddy Inc. (GDDY)
GDDY in Scottsdale, Ariz.,designs and develops cloud-based technology products in the U.S. and internationally. The company offers domain name registration products, shared website hosting products, and security products. In addition, it provides presence products, business application products, and internet-based telephony products. It serves individuals, small businesses, organizations, developers, and domain investors.
In February, GDDY entered accelerated share repurchase agreements with Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC to repurchase an aggregate $750 million of its Class A common stock. “We are committed to delivering value to shareholders through reducing our share count over time,” said Mark McCaffrey, GDDY’s CFO.
In January, GDDY launched Social Site GoDaddy Studio’s bio site tool. Using this tool, users can generate a personalized “go.studio” link to a simple and free site where they can aggregate links to their online presence. This will help them grow their businesses by attracting traffic to their content. This launch is expected to extend the company’s customer reach and boost profitability.
In the fiscal year 2021 fourth quarter ended December 31, 2021, GDDY’s total revenue increased 16.6% year-over-year to $1.02 billion, while its operating income improved 34.9% from the year-ago value to $124.80 million. Its net income attributable to GDDY per share of Class A common stock came in at $0.52, registering an increase 26.8% from the prior-year period.
The consensus revenue estimate of $989.20 million for the fiscal 2022 first quarter ended March 2022 represents an increase of 9.8% from the year-ago value. It is no surprise that GDDY has surpassed the consensus revenue estimates in each of the trailing four quarters. The consensus EPS estimate of $0.85 for the to-be-reported quarter indicates a 32.8% year-over-year rise.
The stock has gained 21.6% over the past six months and closed yesterday’s trading session at $81.74.
GDDY’s POWR Ratings reflect this promising outlook. It has an overall grade of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
GDDY has a grade of A for Growth and a B grade for Sentiment. Within the Software – Business industry, it is ranked #9 of 60 stocks.
To see additional POWR Ratings (Stability, Momentum, Value, and Quality) for GDDY, click here.
International Business Machines Corporation (IBM)
IBM in Endicott, N.Y., offers integrated solutions and services worldwide. The company operates through four segments: Software; Consulting; Infrastructure; and Financing. It provides hybrid cloud platform and software solutions, transaction processing software, business transformation services, system integration services, technology consulting services, and cloud platform services. In addition, it offers on-premises and cloud-based server and storage solutions and financing services.
On April 26, IBM’s board of directors declared a regular quarterly cash dividend of $1.65 per common share, payable on June 10, 2022. The company has increased its quarterly cash dividend for the 27th year in a row. This reflects its strong financial position and ability to return value to the shareholders.
On April 21, IBM and Red Hat, Inc. entered a five-year collaboration to modernize the U.S. Department of Education’s G5 grants management system with open, hybrid cloud technologies and help improve efficiency and effectiveness and drive transparency. This is expected to boost the company’s growth and profitability.
In the same month, IBM unveiled IBM z26, its next-generation system with an integrated on-chip AI accelerator-delivering inferencing. “Now with IBM z16 innovations, our clients can increase decision velocity with inferencing right where their mission critical data lives. This opens tremendous opportunities to change the game in their respective industries so they will be positioned to deliver better customer experiences and more powerful business outcomes,” said Ric Lewis, SVP, IBM Systems.
IBM’s total revenue increased 7.7% year-over-year to $14.20 billion in its fiscal year 2022 first quarter, ended March 31, 2022. Its gross profit grew 4.4% year-over-year to $7.34 billion. Its income from continuing operations rose 64.3% from the prior-year period to $662 million. And the company’s earnings per share from continuing operations improved 62.2% year-over-year to $0.73.
Analysts expect IBM’s revenue for its fiscal year 2022, ending Dec. 31, 2022, to come in at $60.94 billion, representing a 6.3% rise year-over-year. It has surpassed the consensus revenue estimates in three of the trailing four quarters. The Street expects the company’s EPS for the current year to be $9.79, representing a 23.5% increase year-over-year. Furthermore, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained marginally in price over the past month. It closed yesterday’s trading session at $132.52.
IBM’s POWR Ratings reflect a strong outlook. The stock has an overall B rating, which translates to Buy in our POWR Ratings system.
IBM has a grade of B for Value and Quality. It is ranked #20 of 81 stocks in the Technology – Services industry.
Click here to see IBM’s POWR Ratings for Growth, Sentiment, Stability, and Momentum.
Stocks to Avoid:
Robinhood Markets, Inc. (HOOD)
HOOD in Menlo Park, Calif., operates a financial services platform in the U.S. The company’s platform enables users to invest in stocks, exchange-traded funds (ETFs), gold, options, and cryptocurrencies. In addition…
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