The resumption of economic activities has led investors to shift their focus to cyclical stocks to capitalize on their solid growth prospects. Consequently, many highly priced technology stocks have lost investors’ love lately and are trading at reasonable prices now. Concerns about rising inflation are also playing a major role in investors’ decisions to rotate away from expensive tech stocks. Tech stocks’ weakness is evident in the Technology Select Sector SPDR Fund’s (XLK) 9.2% gains over the past three months compared to the SPDR S&P 500 Trust ETF’s (SPY) 11.1% returns.
Nevertheless, we think the tech sector holds immense growth potential. In addition to the continued, global digital transformation, increasing use of advanced technologies such as artificial intelligence (AI), Internet of Things (IoT) and augmented reality (AR) in almost all industries could keep driving the sector’s growth.
So, we think it could be wise to bet on Qualcomm Incorporated (QCOM) and Netgear, Inc. (NTGR) that are currently trading at discounts to their peers but hold immense growth potential.
QUALCOMM Incorporated (QCOM)
Established wireless technology company QCOM is engaged in the develops, launches and expands technologies like fifth generation (5G). It is also engaged in the development and commercialization of foundational technologies and products that are used in mobile devices and other wireless products, including network and broadband gateway equipment, consumer electronic devices, and other connected devices worldwide.
QCOM, along with United States Cellular Corporation (USM), Telefonaktiebolaget LM Ericsson (ERIC) and Inseego Corp. (INSG), announced on May 6, 2021 that they have successfully achieved a 5G extended-range milestone over millimeter Wave (mmWave) on a commercial network. Since 5G mmWave is a robust and crucial solution to meet the increasing traffic demand and expand broadband services, this is expected to lead to increasing demand for QCOM’s products and services.
QCOM’s revenue surged 52% year-over-year to $7.93 billion in the second quarter, ended March 28, 2021. Its earnings before taxes grew 256% year-over-year to $2.13 billion. Its net income came in at $1.76 billion, which represents a 276% year-over-year increase. The company’s EPS was $1.53, up 273% year-over-year.
In terms of forward non-GAAP PEG, QCOM’s 0.72x is 60.4% lower than the 1.82x industry average. In terms of forward GAAP P/E ratio also, the stock’s 19.79x is 39% lower than the 32.44x industry average.
Analysts expect its EPS to increase 94.2% year-over-year to $1.67 for the current quarter, ending June 30, 2021. It surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to increase 48.5% year-over-year to $32.16 billion in 2021. The stock has soared nearly 56.1% over the past year to close yesterday’s trading session at $134.34.
QCOM’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. The company has an overall B rating, which equates to Buy in our proprietary ratings system. The stock has a B grade for Growth, Value, Sentiment and Quality.
We have also graded QCOM for Stability and Momentum. Click here to access all QCOM’s ratings. The stock is ranked #7 of 98 stocks in the B-rated Semiconductor & Wireless Chip industry.
Click here to checkout our Semiconductor Industry Report for 2021
NETGEAR, Inc. (NTGR)
NTGR designs, develops, and markets networking and Internet connected products for consumers, businesses, and service providers. It operates in two segments--connected home, and small and medium business. The company offers smart home products and value-added service offerings. It also provides ethernet switches, wireless controllers, unified storage products, and internet security appliances.
On May 11, NTGR announced its latest WiFi 6 addition to its Orbi Pro portfolio. The Orbi Pro WiFi 6 Mini (SXK30) Dual-band Mesh System, with its attractive price point, is designed for small businesses and home-based offices. The addition could further increase the sales of the company in the near-term.
NTGR’s net revenue surged 38.3% year-over-year to $317.92 million in the first quarter, ended March 28, 2021. Its operating income grew 4582.7% year-over-year to $31.33 million. Its net income was $22.96 million, compared to a $4.17 million loss in the prior year period. The company’s EPS came in at $0.72, compared to a $0.14 loss per share the year-ago period.
In terms of forward EV/Sales, NTGR’s 0.62x is 85.4% lower than the 4.26x average. In terms of forward Price/Sales ratio also, the stock’s 0.87x is 78.2% lower than the 4.01x industry average.
For the current quarter, ending June 30, 2021, analysts expect NTGR’s EPS and revenue to increase 31.5% and 33.8%, respectively, year-over-year to $0.71 and $314.84 million. It surpassed Street EPS estimates in each of the trailing four quarters. The stock has gained 47.9% over the past year to close yesterday’s trading session at $38.38.
NTGR’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The stock has an A grade for Value, and a B grade for Growth.
Within the B-rated Technology - Communication/Networking industry, NTGR is ranked #14 of 56 stocks. To see the additional POWR Ratings for NTGR (Sentiment, Momentum, Stability and Quality), click here
QCOM shares were trading at $133.15 per share on Monday afternoon, down $1.19 (-0.89%). Year-to-date, QCOM has declined -11.73%, versus a 13.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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