Concerns over the Federal Reserve’s monetary policy tightening have fostered a massive tech sell-off of late, making many high-quality stocks now trade at attractive valuations. The tech-heavy Nasdaq Composite has declined 28.8% year-to-date.
However, the continuing adoption of advanced tech solutions amid rapid digitization and extended hybrid working trends position the industry well to rebound soon. While many tech stocks have not yet hit bottom, some high-quality stocks look attractive at their current price levels.
We think the current market uncertainty provides an excellent opportunity to buy the stocks of prominent tech companies Oracle Corporation (ORCL), Open Text Corporation (OTEX), Qualcomm Incorporated (QCOM), SAP SE (SAP), and United Microelectronics Corporation (UMC), each of which possesses solid fundamentals. With higher profitability and lower valuations, these stocks have the potential to rebound in price soon.
Oracle Corporation (ORCL)
ORCL in Redwood City, Calif., provides products and services that address all aspects of corporate IT environments, including application, platform, and infrastructure worldwide. The company operates through four segments—cloud services and license support; cloud license and on-premises license; hardware; and services. It markets and sells its solutions directly to businesses in various industries, government agencies, educational institutions, and indirect channels.
On May 24, 2022, ORCL expanded the built-in security services and capabilities of Oracle Cloud Infrastructure (OCI) with the addition of a new built-in and cloud-native firewall service and enhancements to Oracle Cloud Guard and Oracle Security Zones to help customers protect their cloud applications and data against emerging threats. These innovations will help organizations easily secure their cloud deployments and applications with simple, prescriptive, and integrated services.
ORCL’s revenues for its fiscal year 2022 third quarter, ended Feb. 28, 2022, increased 4.2% year-over-year to $10.51 billion. The company’s non-GAAP operating income came in at $4.81 billion, indicating a marginal rise from the prior-year period. While its non-GAAP net income decreased 11% year-over-year to $3.38 billion, its non-GAAP EPS decreased 2.6% to $1.21. As of Feb. 28, 2022, the company had $22.68 billion in cash and cash equivalents.
Analysts expect the company’s EPS to hit $4.75 for its fiscal 2022 ending May 31, 2022, representing a 1.7% rise from the prior-year period. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The $42.28 billion consensus revenue estimate for the same fiscal year represents a 4.4% year-over-year improvement. Its EPS is expected to grow at a 10.2% rate per annum over the next five years.
ORCL’s ROE, ROA, and ROTC are 1060.3%, 8.8%, and 13.3%, respectively, for the trailing-12-months. The stock’s 14.51x non-GAAP forward P/E is 18.6% lower than the 17.83x industry average. In terms of forward EV/EBIT, ORCL is currently trading at 12.51x, which is 18.7% lower than the 15.38x industry average. It has declined 9.4% in price over the past month to close yesterday’s trading session at $69.03.
ORCL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Value, Quality, and Stability. Click here to see the additional ratings for ORCL (Momentum, Sentiment, and Stability). ORCL is ranked #18 of 156 stocks in the Software - Application industry.
Click here to check out our Software Industry Report for 2022
Open Text Corporation (OTEX)
Based in Waterloo, Canada, OTEX designs, develops, and sells information management software and solutions. The company’s Information Management solutions delivered at scale in the OpenText Cloud help organizations optimize their digital supply chains. Its Content Services solutions range from content collaboration and intelligent capture to records management and archiving. It serves organizations, enterprises and mid-market companies, public-sector agencies, small- and medium-sized businesses, and direct consumers internationally.
On May 20, 2022, Tokio Marine Holdings, Inc.’s (TKOMY) Tokio Marine Insurance Vietnam (TMIV) subsidiary, a property and casualty (P&C) insurer in Vietnam, implemented OTEX’s OpenText solutions to use its high-quality insurance and risk management services and modernize its client communication strategy and enable rapid delivery of information to customers. This will also enable TMIV to modernize internal processes and cut time spent on preparing insurance documents by almost half.
For its fiscal year 2022 third quarter, ended March 31, 2022, OTEX’s total revenues increased 5.9% year-over-year to $882.28 million. The company’s gross profit came in at $657.29 million, up 4.9% from the prior-year period. It had $1.63 billion in cash and cash equivalents as of March 31, 2022.
The $76.04 billion consensus revenue estimate for its fiscal year 2022 ending June 30, 2022, represents a 23.1% rise from the year-ago period. It surpassed the Street’s EPS estimates in each of the trailing quarters. The company’s EPS is expected to grow at an 11.3% rate per annum over the next five years.
The company’s ROE, ROA, and ROTC are 11.8%, 4.4%, and 5.3%, respectively, for the trailing 12 months. The stock’s 11.94x non-GAAP forward P/E is 33.1% lower than the 17.83x industry average. In terms of forward EV/EBIT, OTEX is currently trading at 11.33x, which is 26.3% lower than the 15.38x industry average. Over the past month, the stock has declined 6.6% in price to close yesterday’s trading session at $38.20.
OTEX’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Value, Quality, and Stability. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for OTEX’s Momentum, Sentiment, and Growth here. OTEX is ranked #10 in the Software - Application industry.
Qualcomm Incorporated (QCOM)
QCOM is a multinational semiconductor and telecommunications equipment company that develops and delivers products and services based on code-division multiple access (CDMA) technology used in digital wireless communications equipment and satellite ground stations. The San Diego, Calif.-based concern operates through three segments–Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI).
On May 23, 2022, QCOM introduced QCA7006AQ, a next-generation powerline communication (PLC) device designed to address EV charging station communications needs that use a global Combined Charging System (CCS). Compliant with the HomePlug Green PHY (HPGP) specification that implements Vehicle-to-Grid (V2G) systems, the QCA7006AQ supports an Ethernet digital interface, in addition to Serial Peripheral Interface (SPI), the AEC-Q100 Grade 2 compliance, and the HPAV operation mode. These features should enable QCOM to witness wider recognition across the auto industry.
QCOM’s non-GAAP revenues for its fiscal 2022 second quarter, ended March 27, 2022, increased 40.8% year-over-year to $11.16 billion. The company’s non-GAAP operating income came in at $4.37 billion, up 63.7% from the year-ago period. QCOM’s non-GAAP net income was $3.66 billion, representing a 67.6% rise from the prior-year period. Its non-GAAP EPS came in at $3.21, indicating a 69% year-over-year improvement. As of March 27, 2022, the company had $7.17 billion in cash and cash equivalents.
Analysts expect the company’s EPS to improve 46.8% year-over-year to $12.54 for its fiscal 2022, ending Sept. 30, 2022. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $44.66 billion consensus revenue estimate for the same fiscal year represents a 33.4% rise from the prior-year period. The company’s EPS is expected to grow at a 14.3% rate per annum over the next five years.
QCOM’s ROE, ROA, and ROTC are 107.6%, 19.7%, and 30.7%, respectively, for the trailing 12 months. The stock’s 10.21x non-GAAP forward P/E is 42.7% lower than the 17.83x industry average. In terms of forward EV/EBIT, QCOM is currently trading at 8.80x, which is 42.8% lower than the 15.38x industry average. The stock has declined 3.2% in price over the past month to close yesterday’s trading session at $128.53.
QCOM’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has a B grade for Growth, Quality, Value, and Sentiment. Click here to see the additional ratings for QCOM’s Stability and Momentum. QCOM is ranked #5 of 95 stocks in the B-rated Semiconductor & Wireless Chip industry.
Click here to checkout our Semiconductor Industry Report for 2022
Note that QCOM is one of the few stocks handpicked by our Chief Value Strategist, Steve Reitmeister, currently in the POWR Value portfolio. Learn more here.
SAP SE (SAP)
Based in Walldorf, Germany, SAP operates as an enterprise application software company worldwide. The company offers e-business and enterprise management software, consults on organizational usage of its applications software, and provides training services.
On May 11, 2022, prominent tech company International Business Machines Corporation (IBM) announced its migration to SAP S/4HANA, SAP’s next-generation ERP software, to fuel the company’s growth and better support its clients. This will enable IBM to focus on improving business processes with RISE with SAP S/4HANA Cloud, which will ultimately move more than 375 TB of data to IBM Power on Red Hat Enterprise Linux on IBM Cloud. This expanded partnership should also help with improved decision-making supported by AI and automated workflows. Nearly all of IBM’s $58 billion in revenue will flow through SAP software once this digital transformation is completed.
For its fiscal 2022 first quarter, ended March 31, 2022, SAP’s total revenues increased 17.6% year-over-year to €7.08 billion ($7.54 billion). As of March 31, 2022, the company had €8.94 billion ($9.52 billion) in cash and cash equivalents.
SAP has surpassed Street EPS estimates in three of the trailing four quarters. Analysts expect the company’s revenue to be $31.71 billion for its fiscal 2022 ending Dec. 31, 2022, indicating a 3.7% rise from the prior-year period. SAP’s EPS is expected to grow at a 1.4% rate per annum over the next five years.
SAP’s ROE, ROA, and ROTC are 12.8%, 4.6%, and 5.9%, respectively, for the trailing 12 months. The stock’s 17.83x non-GAAP forward P/E is at par with its industry average. In terms of forward EV/EBIT, SAP is currently trading at 14.12x, which is 8.2% lower than the 15.38x industry average. Over the past month, it has declined 4.4% in price to close yesterday’s session at $98.70.
SAP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for Quality, Stability, and Value. Click here to see the additional ratings for SAP (Momentum, Growth, and Sentiment). The stock is ranked #21 in the Software - Application industry.
United Microelectronics Corporation (UMC)
UMC is a Hsinchu, Taiwan-based semiconductor foundry that provides integrated circuits (ICs), mask tooling, wafer fabrication, and assembly and testing services. The company focuses on communication, consumer electronics, computers, memory, new generation light-emitting diodes (LED), and other industries.
On April 26, 2022, UMC’s United Semiconductor Japan Co., Ltd. (USJC) subsidiary and DENSO Corporation, a leading Japan-based automotive components manufacturer, collaborated to produce power semiconductors at USJC’s 300mm fab. Set to install an insulated gate bipolar transistor (IGBT) line at USJC’s wafer fab, DENSO will contribute its system-oriented IGBT device and process technologies, while USJC will provide its 300mm wafer manufacturing capabilities to bring the 300mm IGBT process into mass production. It is supported by Japan’s Ministry of Economy, Trade, and industry’s renovation and decarbonization program for indispensable semiconductors. This should help UMC meet the growing automotive and EV market demand.
For its fiscal year 2022 first quarter, ended March 31, 2022, UMC’s operating revenues increased 34.7% year-over-year to $2.22 billion. The company’s gross profit came in at $961 million, indicating a 120.1% year-over-year improvement. Its operating income was $780 million, up 193% from the year-ago period. UMC’s net income came in at $2.22 billion, representing a 34.6% rise from the prior-year period. Its earnings per ADS were $0.28, indicating an 89.9% year-over-year improvement. As of March 31, 2022, the company had $6.02 billion in cash and cash equivalents.
Analysts expect UMC’s EPS to grow 34.9% year-over-year to $1.12 for its fiscal 2022, ending Dec. 31, 2022. It surpassed the consensus EPS estimates in each of the trailing four quarters. The $9.32 billion consensus revenue estimate for the same fiscal year indicates a 21.1% year-over-year improvement. The company’s EPS is expected to grow at a 34.1% rate per annum over the next five years.
UMC’s ROE, ROA, and ROTC are 23.7%, 9.4%, and 11.8%, respectively, for the trailing 12 months. The stock’s 6.72x non-GAAP forward P/E is 62.3% lower than the 17.83x industry average. And in terms of forward EV/EBIT, UMC is currently trading at 5.54x, which is 64% lower than the 15.38x industry average. Over the past month, the stock has gained 4.1% in price to close yesterday’s trading session at $8.24.
UMC’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Quality, and a B grade for Growth and Value. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for UMC’s Stability, Sentiment, and Momentum here. UMC is ranked #1 in the Semiconductor & Wireless Chip industry.
ORCL shares were trading at $70.18 per share on Wednesday afternoon, up $1.15 (+1.67%). Year-to-date, ORCL has declined -18.91%, versus a -15.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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