Value investors often look for undervalued (or 'cheap') stocks that trade below their intrinsic values. Their analysis should lead them to believe that stocks will eventually realize their true value, leading to greater profits.
The technology sector has been in flux all over the world for the past few months. Has there been – or is there still – an opportunity to consider buying unimportant shares in high-quality businesses? Let's find out…
Advanced Micro Devices
What it does: AMD designs high-performance processors and graphics cards, competing with Nvidia in PCs, servers, and gaming.
Written by James Fox. Advanced Micro Devices (NASDAQ:AMD) stock has retreated from the highs.
It's still expensive on near-term metrics, trading at 44.6 times forward earnings, but growth-adjusted metrics are still very attractive – the price-to-earnings-to-growth ratio is 1.06, representing a 41.6% sector discount.
The biggest opportunity for growth is in the field of Artificial Intelligence (AI) and the data center, where it currently plays a distant second fiddle to Nvidia.
So far, it has followed a different path to Nvidia, focusing on the development of high-performance chipsets rather than a 'full stack' (hardware plus software) offering.
However, there are several reasons to think that AMD may want more market share. The Santa Clara company is looking to get ahead of the curve in AI and a recent acquisition could help provide its software.
In addition, Nvidia is facing some delays with its next-generation Blackwell chips and this may present a window of opportunity for competitors.
However, it would be remiss of me not to highlight that this is a fast moving industry. Failure to keep up with Nvidia or ahead of Intel would be disastrous for those all-important growth forecasts.
James Fox is a shareholder in Advanced Micro Devices
Alphabets
What it does: Alphabet is a combination with a huge technological empire. It owns Google, YouTube, Android, DeepMind, Fitbit, and more.
Written by Charlie Carman. Alphabets (NASDAQ:GOOG) (NASDAQ:GOOGL) comfortably beat Wall Street estimates on second-quarter earnings.
A 14% rise in profit to $84.7bn beat the consensus forecast of $84.2bn. Earnings per share of $1.89 also beat expectations of $1.84.
Despite these stellar numbers, Alphabet's stock price has fallen recently. There are three main reasons why investors can look today for an attractive entry point.
First, despite initial fears, big AI-powered language models like ChatGPT haven't eroded Google's dominance in internet search.
Second, the classification of cloud computing has strong momentum. Quarterly revenue rose 29%, crossing the $10bn mark for the first time.
Third, the company's price-to-earnings (P/E) ratio of 18.1 is the lowest among the 'Magnificent Seven'. On this metric, the stock looks cheap.
Admittedly, ongoing antitrust litigation creates uncertainty in the investment outlook, creating risks for share price growth. But, as Warren Buffett once said, it can be wise to be selfish when others are afraid.
Charlie Carman is a shareholder in Alphabet.
Alphabets
What it does: Owner of Google and YouTube, Alphabet is one of the largest technology companies in the world.
Written by Edward Sheldon, CFA. Alphabets (NASDAQ: GOOG ) (NASDAQ:GOOGL ) shares have been hit hard in the recent tech selloff. As I write this, they are more than 20% off their 2024 high.
After this fall, I think Big Tech stocks offer quite a bit of value. Currently, the forward price-to-earnings (P/E) ratio (using 2025 earnings per share) is only 17.
That puts me down for this tech company. After all, this is a business with a good track record and many opportunities for future growth.
Now, it's important to note that there is some uncertainty with this stock. One problem is that new AI-powered apps (like ChatGPT) are a threat to search revenue.
Another thing is that the regulators are looking at the company because of its dominance. Recently, the US Department of Justice targeted Google's monopoly on digital marketing.
All things considered, however, I believe the shares are very cheap. At current prices, I'm tempted to add to my position.
Edward Sheldon is a shareholder in Alphabet
NCC Group
What it does: NCC Group provides cyber security services, including digital protection and risk management.
Written by Royston Wild. Cyber security expert NCC Group (LSE:NCC) was already looking cheap before the recent market reversal. Today I think it can be considered a true bargain.
City analysts estimate that annual revenue here will increase by 120% this fiscal year (until May 2025). As a result, NCC shares trade at a relative price-to-earnings (P/E) ratio of 19.6 times.
That compares favorably with high valuations for many US and UK tech stocks. But it doesn't end there.
I FTSE 250 the company trades at an expected price-to-earnings growth (PEG) multiple of 0.2. Any reading below one suggests that the stock is underperforming.
Sales disappointed last year as tough economic conditions affected business spending. Things could remain difficult for NCC, too, if the US falls into recession.
However, recent sales gains bode well for the future, with Cyber a May- May-positive-Farmed,
I think the profit here may continue for a long time as the cyber warfare crisis slows down, and that buying today may prove a smart move.
Royston Wild has no shares in the NCC Group.
ZScaler
What it does: Develops and provides network services and Internet security tools to businesses around the world.
Written by Mark David Hartley. ZScaler (NASDAQ: ZS ) fell 22% during the first week of September as the US technology industry had a tough time selling. Unlike the competitor Fortinethit hard by the selloff. The crash wiped out all of last year's gains, bringing it back to October 2023 prices. Overall, it's down more than 50 percent from the high, giving it plenty of room for growth if the economy recovers.
Despite the volatility, the company is popular with investors. But the high cost has left it unprofitable for several years. And despite revenues of $2.17bn, the shares are still valued at 12 times per share. Generally, that would mean that the price of $170 is too high. Still, analysts are predicting a 12-month price target of $215, up 25% from the current price. That will bring it closer to the price it was trading at in March this year.
Mark David Hartley is a shareholder in ZScaler and Fortinet.
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