What are we looking for?
U.S. technology stocks looking attractive after a recent pullback in the sector.
After more than a year of very strong performance, U.S. tech stocks have recently pulled back significantly from their highs and are now lagging significantly behind other sectors such as financial services and health care. In particular, computer hardware (down 6.9 per cent in the past month) and semiconductor equipment (down 6.8 per cent) are among the worst-performing industries in the U.S. market. Given the continued strength in the U.S. economy, one wonders whether some technology companies may now represent compelling value.
We will be using Recognia Strategy Builder to search for U.S. computer hardware and semiconductor stocks showing attractive earnings and valuations because of recent market performance.
We begin by setting a minimum market cap threshold of $10-billion (U.S.) to focus on larger and more stable technology stocks in the U.S. market.
Next, we will filter for stocks with forward price-to-earnings ratios of 20 or less. This will help us focus on companies with lower valuation levels. We will also filter on five-year earnings-per-share growth rates of 10 per cent annually or more to find companies with growing and stable businesses.
Lastly, to find stocks that have been beaten down in the recent pullback, we will screen for stocks trading 10 per cent or more off their respective 52-week highs.
More about Recognia
Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia's product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.
What did we find?
Topping our list is Seagate Technology PLC. After hitting a 52-week high on April 25, Seagate stock has fallen more than 23 per cent and now has a forward P/E ratio of just 8.4 (the lowest on our list). On April 26, Seagate issued third-quarter results that included conservative guidance for the remainder of the year because of a "stable" demand environment.
The highest long-term EPS growth rate on our list belongs to chip equipment maker Applied Materials Inc. Applied Materials' stock price has slid by 12 per cent since early June in spite of record profit and revenue announced in mid-May. Applied Materials also has a dividend yield of approximately 1 per cent.
The largest company on our list is networking-giant Cisco Systems Inc. Since hitting a 52-week high on May 5, Cisco has declined 10.1 per cent compared with approximately 0.6 per cent for the Nasdaq 100 technology sector index.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.
Attractive U.S. tech stocks
|Rank||Company||Ticker||Market Cap. ($B)||P/E Ratio (This Yr's Estim.)||EPS Growth Rate (5 Yr Historical)||Change from 52-Wk High||Dividend Yield|
|1||Seagate Technology PLC||STX-Q||$11.5||8.4||79.1%||-23.4%||6.5%|
|2||Lam Research Corp.||LRCX-Q||$22.5||15.5||72.8%||-14.7%||1.3%|
|3||Applied Materials Inc.||AMAT-Q||$44.1||15.9||84.0%||-12.0%||1.0%|
|5||Hewlett Packard Enterprise Co.||HPE-N||$27.4||11.2||21.0%||-11.6%||4.1%|
|6||Skyworks Solutions Inc.||SWKS-Q||$17.6||15.7||37.8%||-13.0%||1.2%|
|7||Cisco Systems Inc.||CSCO-Q||$156.7||12.9||14.1%||-10.1%||1.8%|
|8||Microchip Technology Inc.||MCHP-Q||$17.4||19.9||11.8%||-10.9%||2.3%|