With the Nasdaq solidly in a bear market, most market participants are busy talking about the steep losses tech names have suffered. But in the long term, the technology sector will be a force to reckon with in the market, and if history repeats itself, stocks from the technology sector could start their path to recovery sooner than other stocks. Following the dot-com bubble and the financial crisis of 2008, the tech-heavy Nasdaq Composite hit its trough long before the S&P 500.
This go around, for innovation-focused investors, the potential of some mid-cap tech stocks (stocks with a market cap. that is > $2 billion and < $10 billion) should not be ignored. While small-cap stocks are often fast-growing but volatile, and large-cap stocks tend to be slow growing and relatively stable, the best mid-caps tend to fall in between: less volatile than fast-moving small caps but with more growth potential than mammoth large-cap companies. Top-ranked mid-cap stocks have a high potential to enhance their profitability, productivity, and market share.
Our research team has a few recommendations for mid-cap tech stocks poised to take off when the technology sector regains traction.
DXC Technology Co. (DXC) provides information technology services and products. DXC targets IT modernization, including both on-premises and cloud services, as well as data-driven operations and workplace modernization. The company serves 6,000 customers across the private and public sectors globally.
For its first quarter, which ended June 30th, DXC Technology reported $3.71 billion in revenue, down 8.6% year-over-year and just shy of the $3.72 billion Wall Street expected. The company reported $0.75 earnings per share for the quarter, missing the consensus estimate of $0.82 by 9%. The company’s Q1 revenue and earnings miss were disappointing. However, DXC is still progressing on its transition to a more digitally focused, consistent and transparent operator, even though the path toward achieving these goals could take longer than initially anticipated.
DXC shares had fallen 33% over the past year, leaving them priced at only around six times this year’s projected earnings. Short-term, prolonged market weakness could continue to weigh heavily on the stock, but those with a longer-term outlook will likely appreciate a deeper pull-back as an opportunity to get in at a better price.
Founded in 2001, Canadian Solar Inc. (CSIQ) is a leading manufacturer of solar photovoltaic modules and a provider of solar energy solutions. CSIQ has delivered around 52 GW of solar modules to thousands of customers in more than 150 countries through the end of 2021, reaching approximately 13 million households. Canadian Solar derives roughly 47% of its revenue from Asia, 35% from the Americas, and 18% from Europe and everywhere else.
Canadian Solar is one of the most bankable companies in the solar and renewable energy industry, having been publicly listed on the NASDAQ since 2006. The company has the potential to advance in the upcoming months based on its continued business growth, favorable earnings, and revenue outlook.
Benefitting partially from renewed interest in renewable energy solutions, Canadian Solar posted revenue of $1.25 billion in Q1 of this year, up nearly 15% from the $1.09 billion in sales posted in the year-ago quarter. CSIQ is up 33% year to date, while the Nasdaq index is down 19% during the same period, making Canadian Solar intriguing on a relative level. Moreover, the share price remains 33% below its February 2021 peak, and now may be a good time to buy before the next leg up.
Online security is a young, quickly evolving industry. Competition is heavy in the space, and demand continues to grow faster in volume and complexity. The undisputed global leader in identity security, CyberArk (CYBR), has been gaining attention on Wall Street. The stock is up 10% this week and could continue to gain steam ahead of the company’s earnings release, slated for next Wednesday. Regardless of any short-term earnings volatility, the potential for long-term, steady growth is too great to ignore.
CyberArk’s innovations occur across its self-hosted solutions and expanding SaaS portfolio of privileged access management, secrets management, and cloud privilege security offerings, helping its customers enable “Zero Trust” by enforcing the least privilege. Under the framework of its Zero Trust approach, its teams can focus on identifying, isolating, and stopping threats from compromising identities and gaining privilege before they can do harm.
The Israel-based company was recently named a leader in the Gartner Magic Quadrant for Privileged Access Management for 2021. It was positioned both highest in ability to execute and furthest in completeness of vision for the fourth time in a row. It comes as no surprise the business has been attracting customers to its subscription-based services, which means tremendously reliable cash flow, a good sign for anyone eyeing the small-cap.
For its second quarter, CyberArk reported a 133% growth acceleration from the previous year quarter of the subscription portion of its annual recurring revenue (ARR) to $255 million. Total ARR came in at $465 million, with growth Accelerating to 48%. Management also increased the full year 2022 ARR Guidance Range to $589-$601 million, up from a prior estimate of $583.5-$598.5 million.
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