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) is a provider of information technology services and products targeting IT modernization, including both on-premises and cloud services, as well as data-driven operations and workplace modernization. The company serves 6,000 customers globally across the private and public sectors and has a market cap of $6.55 billion.
For its second quarter, DXC Technology reported $3.57 billion in revenue, down 11.5% year-over-year and slightly higher than the $3.55 billion Wall Street was expecting. The company reported $0.75 earnings per share for the quarter, beating the consensus estimate of $0.73.
“I am pleased with our second quarter results, where we delivered organic revenue, margin, and EPS at the top end of our guidance range. This is the kind of strong performance that we are accustomed to, as our revenue performance is one of the best results we have delivered, and our margins are clearly benefiting from our cost optimization program. All of this gives us confidence that we have built a quality company that is well-positioned to achieve our short-term and long-term goals,” commented Mike Salvino, DXC Chairman, President, and CEO.
DXC’s share price has fallen 15% in 2022, leaving them priced at only around eight 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. With a market cap of $2.8 billion, the company has the potential to advance based on its continued business growth, favorable earnings, and revenue outlook.
Benefitting from renewed interest in renewable energy solutions, Canadian Solar posted revenue of $2.31 billion in Q2 of this year, up nearly 62% from the year-ago quarter. CSIQ is up 19% year to date, while the Nasdaq index is down 29% during the same period, making Canadian Solar intriguing on a relative level. Moreover, the share price remains 39% 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 both volume and complexity. Not all companies from the burgeoning subsector are set to last. The undisputed global leader when it comes to identity security, CyberArk (CYBR), has been gaining attention on Wall Street. The stock is up 26% over the past six months and could continue to gain heading into 2023. 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 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 the 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 third quarter, CyberArk reported a 133% growth acceleration from the previous year’s 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. With a market cap of $6.21 billion, CYBR is one of the top choices of mid-cap cybersecurity stocks available.
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