4 Beaten-Down Tech Stocks You Should Keep an Eye On
The Trade Desk, QuickLogic Corporation, Microsoft and Monolithic Power Systems are great stocks despite their valuations.
The major indexes are moving up one day and down the next although of late, they’re moving down more often. The writing is on the wall: tapering is almost done and rate hikes are coming.
According to Fed Chair Powell’s latest comments, the economy can handle it. And pitting the latest ISM report, unemployment claims and other barometers against the decades-high inflation rate of 7%, it’s clear that he’s right. The inflation may be adding to the GDP for now, but buying power is clearly declining, which isn’t ideal.
So here we are with a hawkish Fed, the possibility of several rate hikes this year and wondering whether tech stocks are still worth considering. Obviously, when they come the rate hikes are going to pull some money out of the market, which will hurt stocks with decidedly frothy valuations.
The question then would appear to be whether all tech stocks have these insane valuations, or whether they’re just a natural consequence of having to bake in very high growth rates. And also, whether high valuations are justified given other safety nets such as sheer size and cash flow.
When you consider all these factors you see that sure, tech valuations are really high at the moment. And there could be a few that aren’t doing that great either. But it’s really important to study the details because there are still hoards of the buy-the dip stocks to choose from.
Below, I’ve picked The Trade Desk, QuickLogic Corporation, Microsoft and Monolithic Power Systems, all of which, in my opinion, are stocks worth buying despite their valuations. Because ultimately, they can only move up.
The Trade Desk TTD
The Trade Desk is an AI-powered ad-tech company operating both in the U.S. and increasingly, outside of it. Its platform helps ad buyers create, manage and optimize data-driven digital advertising campaigns in various ad formats and channels, including display, video, audio, in-app, native and social, and on various devices, such as computers, mobile devices and connected TV. It also provides various platform services, data and other value-added services.
Based on the principle that AI can bring efficiencies to the ad buying process, the company uses the data generated on its platform to further improve its algorithms. And since it is a leading player in the segment, it has access to ever-increasing amounts of data that further improves the efficacy of its model.
The Trade Desk developed and then open-sourced Unified ID 2.0, which does away with cookies while improving user control and privacy. Unified ID 2.0 is gaining traction with a growing number of industry players across the world, which makes operation that much simpler.
While Trade Desk rebounded strongly off the June 2020 quarter that was severely impacted by the lockdown, the company has not been resting on its laurels. Instead, it developed a new ad buying platform called Solimar, which facilitates better goal-setting for campaigns, better measurement of campaign impact, real-time optimization of campaigns across channels and more efficient onboarding and activating of first-party data.
Analysts expect The Trade Desk to grow its revenues by over 42% this year and 29% in the next. Its earnings are expected to grow over 20% in 2022 and 24% in the long term. Omicron is a risk to these estimates, but a very temporary one.
The shares were severely beaten down over the past month as Omicron concerns and a hawkish Fed did major damage. But this is such a good company that the market will eventually catch up. High valuation notwithstanding.
The Trade Desk shares carry a Zacks Rank #2 (Buy).
QuickLogic Corp. QUIK
QuickLogic is a fabless semiconductor company that develops low power, multi-core MCUs, FPGAs and embedded FPGAs, voice and sensor processing technologies. Its subsidiary SensiML Corporation offers an analytics toolkit based on machine learning.
The platform allows end-to-end development spanning data collection, labeling, algorithm and firmware auto generation, and testing. It is used for developing pattern matching sensor algorithms, hardware programming and software design solutions.
The company’s revenues have picked up strongly in 2021 and its margins are also expanding, as software continues to grow in the mix. As a result, it looks as if it will achieve breakeven this year. And fueling these strong results are QuickLogic’s leading-edge products, growing customer and industry relationships, and an increasing network of distribution partners.
Analysts currently expect QuickLogic’s 2021 revenue to grow 49% followed by 47% growth this year. Earnings are expected to grow 56% in 2021 and 20% in the long term.
QuickLogic hasn’t been battered quite as bad as the Trade Desk. However, the shares are still down substantially on the month. On a price to sales basis, the shares look undervalued with respect to the S&P 500, although they’re trading close to their own median value over the past yea.,
QuickLogic shares carry a Zacks Rank #2.
The maker of the Windows OS is one of the few older generation tech companies that remains relevant for modern day computing with all its cloud dependency and highly distributed edge computing. As a result, Microsoft still remains a leader in productivity, cloud and certain segments of the personal computing market, which allows it to generate strong growth and solid cash flows for its investors.
Analysts currently expect Microsoft revenues to grow 16% in the current fiscal year ending in June with another 13% growth the following year. Earnings are also not falling behind. They’re expected to jump around 15% this year and 12% in the long term. When you consider Microsoft’s size, that’s more dollars than most other companies and certainly, all the others I’m discussing here.
So it isn’t surprising that it has a valuation to match. But over the past month or so, Microsoft shares have also dipped, making them more attractive.
Microsoft carries a Zacks Rank #2.
Monolithic Power Systems, Inc. MPWR
Monolithic Power Systems designs, develops, and markets integrated power semiconductor solutions and power delivery architectures for computing and storage, automotive, industrial, communication, and consumer applications markets.
Monolithic Power has not felt any negative impact from the pandemic at all. In fact, being a semiconductor company, it has been one of the enablers of the digital economy that supported us during this time.
As a result, the company has seen particularly strong revenue growth from the June quarter of 2020. It has also benefited from its long-term customer relationships and share gains, particularly in higher-margin categories. This is helping the company to absorb the rising costs without much impact on its bottom line.
Analysts currently expect Monolithic Power to grow its revenue by 41% in 2021 and 19% in the following year. Earnings are expected to grow 43% in 2021 and 25% in the long term. Despite its strong growth history and exciting prospects, Monolithic shares have plunged in the past month.
The shares still look overvalued with respect to the S&P 500 although they’re trading well below their median value over the past year. This is one stock you definitely want to buy on the dip.
Shopping for buy-the-dip stocks isn’t easy because you want to price it just right to maximize your gains. But of course, that isn’t always possible and if you wait too long, you could miss the window. So think about your personal investment goals and your investment horizon when going for these stocks.
One-Month Price Performance
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Microsoft Corporation (MSFT): Free Stock Analysis Report
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The Trade Desk (TTD): Free Stock Analysis Report
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