After a beatdown in 2022, tech stocks appear to be making a comeback as the sector has gained around 2.47% year to date despite the continued uncertainty regarding inflation, interest rates, supply chains and, most recently, the banking sector.
Due to the recovery, investors may be interested in finding opportunities among undervalued tech securities that have predictable performances.
The Undervalued Predictable Screener, a Premium GuruFocus feature, determines whether a stock is undervalued or overvalued based on two methods: discounted cash flow and discounted earnings.
According to both methods, companies with a discount higher than zero are consider undervalued, while discounts below zero are considered overvalued. The companies’ predictability rates are then determined based on their historical performance over the past decade.
The screener also looks for companies with predictability ranks of at least four out of five stars.
Based on these criteria, a number of tech stocks qualified for the screener as of March 27, including SS&C Technologies Holdings Inc. (SSNC, Financial), Lam Research Corp. (LRCX, Financial), Adobe Inc. (ADBE, Financial), CDW Corp. (CDW, Financial) and Applied Materials Inc. (AMAT, Financial).
SS&C Technologies
Shares of SS&C Technologies (SSNC, Financial) are currently trading 55% below the DCF value of $122 and 36% below the discounted earnings value of $85.
The Windsor, Connecticut-based fintech software company has a $13.58 billion market cap; its shares were trading around $54.17 on Monday with a price-earnings ratio of 21.84, a price-book ratio of 2.25 and a price-sales ratio of 2.70.
The GF Value Line suggests the stock is modestly undervalued currently based on historical ratios, past financial performance and analysts’ future earnings projections.
At 94 out of 100, the GF Score indicates the company has high outperformance potential. While it received high ranks for profitability, growth, GF Value and momentum, financial strength was more moderate.
It also has a five-star predictability rank. GuruFocus data shows companies with this rank return an average of 12.1% annually over a 10-year period.
Of the gurus invested in SS&C Technologies, Richard Pzena (Trades, Portfolio) has the largest stake with 5.02% of its outstanding shares. Diamond Hill Capital (Trades, Portfolio), Seth Klarman (Trades, Portfolio) and Ron Baron (Trades, Portfolio) also have sizeable holdings.
Lam Research
Lam Research (LRCX, Financial) shares are trading 32% below the DCF value of $739 and 61% below the discounted earnings value of $1,280.
The manufacturer of semiconductor fabrication equipment, which is headquartered in Fremont, California, has a market cap of $67.60 billion; its shares were trading around $500.97 on Monday with a price-earnings ratio of 13.47, a price-book ratio of 8.17 and a price-sales ratio of 3.63.
According to the GF Value Line, the stock is modestly undervalued currently.
Further, the GF Score of 100 implies the company has high outperformance potential, driven by high marks across the board.
Lam Research also has a 4.5-star predictability rank. GuruFocus found companies with this rank return an average of 10.6% annually.
With a 1.96% stake, Ken Fisher (Trades, Portfolio) is Lam Research’s largest guru shareholder. Other top guru investors include Ken Fisher (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Philippe Laffont (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Jerome Dodson (Trades, Portfolio) and Mark Hillman (Trades, Portfolio).
Adobe
Shares of Adobe (ADBE, Financial) are trading 31% below the DCF value of $539, but 7% above the discounted earnings value of $349.
The San Jose, California-based software company, which is known for inventing the PDF and its digital media editing products, has a $169.82 billion market cap; its shares were trading around $370.31 on Monday with a price-earnings ratio of 36.48, a price-book ratio of 11.95 and a price-sales ratio of 9.63.
Based on the GF Value Line, the stock appears to be significantly undervalued currently.
The GF Score of 98 means the company has high outperformance potential on the back of high ratings for all five criteria.
Adobe also has a four-star predictability rank. According to GuruFocus research, companies with this rank return, on average, 9.8% annually.
PRIMECAP Management (Trades, Portfolio) is Adobe’s largest guru shareholder with a 1.39% stake. Additional gurus with largest positions include Fisher, Chuck Akre (Trades, Portfolio) and Laffont.
CDW
CDW (CDW, Financial) shares are trading 30% below the DCF value of $276 and 31% below the discounted earnings value of $280.
The provider of information technology solutions, which is headquartered in Lincolnshire, Illinois, has a market cap of $26.28 billion; its shares were trading around $193.84 on Monday with a price-earnings ratio of 23.84, a price-book ratio of 16.39 and a price-sales ratio of 1.12.
The GF Value Line suggests the stock is fairly valued currently.
The company has high outperformance potential with a GF Score of 93. While it received high ratings for three of the criteria, financial strength and GF Value were more moderate.
Further, CDW has a four-star predictability rank.
Holding 0.33% of its outstanding shares, Baron is the largest guru shareholder of the company. CDW is also being held by Jim Simons (Trades, Portfolio)’ Renaissance Technologies, David Rolfe (Trades, Portfolio) and Greenblatt.
Applied Materials
Shares of Applied Materials (AMAT, Financial) are trading 27% below its DCF Value of $164 and 53% below its discounted earnings value of $257.
The Santa Clara, California-based company, which supplies semiconductor manufacturing equipment, has a $101.34 billion market cap; its shares were trading around $119.91 on Monday with a price-earnings ratio of 16.07, a price-book ratio of 7.55 and a price-sales ratio of 3.95.
According to the GF Value Line, the stock is fairly valued currently.
With a GF Score of 97, the company has high outperformance potential. While the ratings for four categories were solid, the GF Value rank was more moderate.
Applied Materials has a four-star predictability rank.
Chris Davis (Trades, Portfolio) is the largest guru shareholder of Applied Materials with a 0.86% stake. Other notable investors include Al Gore (Trades, Portfolio)’s Generation Investment, PRIMECAP Management (Trades, Portfolio), Fisher and the T Rowe Price Equity Income Fund (Trades, Portfolio).
Additional opportunities
Other companies that qualified for the screener were Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial), ASML Holding NV (ASML, Financial), Apple Inc. (AAPL, Financial), Texas Instruments Inc. (TXN, Financial) and Sanmina Corp. (SANM, Financial).
