While most tech stocks have bounced back after last year’s selloff in the sector, some of these stocks are trading on attractive forward PEs and discounting the potential for further upgrades in the next few years. The following are five companies worth watching.
IBM (NYSE: IBM)
Market Cap: $123 billion
Forward PE: 9.8
IBM has had a rough time over the last few years. While the business is still very profitable, revenue growth has been almost non-existent over the last 5 years. The company is in the process of pivoting from its legacy hardware business to new ‘strategic imperatives’, including cloud computing, artificial intelligence, security, and blockchain technology. This turnaround has taken longer than expected, and the new initiatives still contribute less than half of all revenue.
However, revenue from the new parts of the business are beginning to accelerate, and the point at which they overtake the legacy business is probably just a few years away. IBM’s forward PE makes it attractive when you consider the growth it is seeing in newer technologies and the fact that the company generates a lot of cash and offers a 4.5% dividend yield.
Advanced Micro Devices (NASDAQ: AMD)
Market Cap: $23.6 billion
Forward PE: 24
After last year’s sell-off in tech stocks, AMD remains nearly 30% off its all-time high. While the trailing PE of 73 looks pricey, the forward PE at 24 is low relative to historical earnings growth and the growth analysts expect to see over the next 1 to 5 years. In fact, if the company matches EPS expectations for the full 2019 year, the current stock price would put AMD on a PEG ratio of less than 0.5.
AMD also has several new product releases scheduled in the next 6 months, which should put the stock back in the spotlight for investors.
Facebook (NASDAQ: FB)
Market Cap: $489 billion
Forward PE: 19
Facebook had possibly its worst year ever in 2018. At one stage its stock price was down more than 55% as a result of concerns over data privacy, slowing user growth, and a sell-off in the broader tech sector. This leaves Facebook trading on a PE of 23 with a forward PE of 19 based on analyst 12-month earnings estimates. This is by far the cheapest the stock has ever been.
Despite Facebook’s challenges the current valuation is low when you consider that this is one of the most profitable companies in the world, with annual revenues of $55 billion and massive margins. It remains one of the most important advertising vehicles in the world, and that barely includes the potential of WhatsApp and Instagram.
Intel (NASDAQ: INTC)
Market Cap: $489 billion
Forward PE: 19
Intel came under pressure when analysts realized that their forecasts for the next 12 months were too optimistic. As it stands growth in the next 12 months probably won’t be impressive. But the market is already beginning to look beyond 2019 to the next round of capacity expansions for data centres and other companies that use Intel’s products.
Intel has a long history of profitability and will be a key supplier to two of the fastest growing industries of the future – cloud computing and the Internet of Things. That and the fact that its forward PE of 11.3 is at the lower end of the range should keep the momentum going.
Qualcomm Inc. (NASDAQ: QCOM)
Market Cap: 67 billion
Forward PE: 12.7
Qualcomm’s share price is well off its highs due to the current weakness in the smartphone market and a legal battle with Apple. However, these short-term issues are overshadowing the opportunity and potential of this company.
The price weakness puts Qualcomm on a forward PE of 12.7 well below the trailing PE. This valuation also fails to account for potential growth in the longer term. QCOM is a leader in 5G technology and holds numerous valuable patents for widely used mobile technology. The company is also engaged in a share buyback which will improve earnings per share, and the stock pays a chunky 4.5% dividend yield (see 4 other high yielding tech stocks here).