Last year, many tech stocks soared as demand for their goods and services was fueled by stay-at-home trends. The tech sector’s immunity to many pandemic-related headwinds boosted those gains even further.
But a lot of those gains evaporated this year as investors focused on reopening plays in a post-pandemic world. As investors shifted from growth to value stocks, the bond yields accelerated the sell-off.
Some investors might be tempted to avoid all tech stocks as a result of the rotation, but there are still plenty of bargains in this market. Let us take a look at three well-run tech companies that are still relatively inexpensive in terms of their development.
1. Juniper Networks
Juniper Networks (NYSE:JNPR) is often overshadowed by Cisco, which makes networking hardware. According to IDC, Juniper is still third in the global router market and fifth in the switch market.
Juniper may seem to be an unappealing investment because it is the underdog in two commoditized markets, but the company has been actively expanding its portfolio of cloud-ready hardware and services to counter slower sales of legacy service provider items.
Juniper’s cloud-focused business has expanded in recent years, and the company expects the trend to continue as more cloud providers upgrade their networks. Its overall revenue remained unchanged at $4.45 billion in fiscal 2020, but it increased by 8% year over year in the first quarter of 2021 as cyclical demand for its networking hardware and services picked up again.
Juniper’s sales and earnings are expected to increase by 5% and 10%, respectively, this year, according to analysts. Its stock, on the other hand, trades at just 14 times forward earnings and pays a 3.1 percent forward dividend yield. It only invested 63 percent of its free cash flow on dividends in the last year, so there is still space to increase it as it grows its cloud portfolio and higher-margin software market.
2. Alphabet
During the pandemic last year, Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Google’s parent company, experienced a brief decline in ad revenues. However, the rise of Google Cloud helped to offset the downturn, and by the end of the year, the company’s advertising business was back on track.
In 2020, Alphabet’s sales and earnings increased by 13% and 19%, respectively. During the pandemic, the company’s full-year operating margin increased from 21% to 23% as a result of tighter spending controls.
As its ad and cloud businesses continue to grow in a post-pandemic environment, Wall Street expects Alphabet’s revenue and earnings to rise another 30% and 51%, respectively, this year. Despite this, its stock trades at only 24 times forward earnings, which seems ridiculously low given its rise.
Alphabet’s stock price seems to be being dragged down by a recent sell-off in tech stocks, as well as unresolved antitrust concerns and Apple’s recent actions against targeted advertising on iOS. However, I believe Alphabet can easily conquer these challenges and continue to be one of the world’s most powerful tech firms for the near future.
2. Salesforce
By fiscal 2026, salesforce.com (NYSE:CRM), the world’s largest cloud-based customer relationship management (CRM) software provider, plans to have increased its annual revenue to more than $50 billion. Demand for automated and outsourced CRM solutions, as well as the expansion of the e-commerce, marketing, and analytics markets, are expected to drive growth.
In fiscal 2021, Salesforce’s revenue and adjusted earnings increased by 24% and 65%, respectively (which ended this January). Throughout the crisis, its market remained stable as large corporations continued to use its cloud-based services to reach out to consumers and improve internal operations.
Salesforce’s revenue is expected to grow 21% this year, but earnings are expected to fall 30% as it completes the upcoming acquisition of Slack, according to analysts (NYSE:WORK). The stock is down due to the $27.7 billion deal’s immediate costs, but the addition of Slack’s centralized communications platform could boost Salesforce’s cloud services in the long run.
Salesforce’s stock does not seem cheap at first, with a P/E ratio of more than 50 times forward earnings, but after it completely absorbs Slack and profits recover, the P/E ratio should decrease. It trades at less than eight times this year’s earnings, making it less expensive than many other cloud stocks.
In essence
Investors who can ignore the short-term turbulence should pay attention to Juniper, Alphabet, and Salesforce. Alphabet is an evergreen software juggernaut, and Salesforce should benefit from the digitization of companies for decades to come. Juniper is an undervalued cyclical play that is starting a new growth cycle, Alphabet is an undervalued cyclical play that is starting a new growth cycle, and Salesforce should benefit from the digitization of businesses for decades to come.
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