In what was a forgettable 2022 for the S&P 500, the information technology sector declined -28%, on par with REITs for the year’s worst economic group.
A surge in interest rates, 40-year high inflation and the Russia-Ukraine conflict, put relentless pressure on technology and other growth-oriented companies.
Now, signs of a recession have the U.S. economy on the shaky ground heading into 2023. Does this mean beat-up tech stocks are in for further bruising?
It depends.
If economic data worsens and the Fed signals an end to its aggressive rate hike campaign, the technology sector could bounce back the fastest. Investors saw this during the fourth quarter before the Fed’s rhetoric shifted back to hawkish.
This doesn’t mean reaching for the most volatile names is the best stock-picking strategy. Given the uncertainty ushering in the new year, companies with improving fundamentals and attractive valuations are the better bet.
The next time Auld Lang Syne plays, these three tech stocks should be in much better spirits.
Is Lam Research Stock Undervalued?
Lam Research Corporation (NASDAQ: LRCX) sells wafer fabrication equipment and services to semiconductor producers. The makers of memory and logic chips, i.e., Lam Research customers, are firmly in recovery mode following industry-wide supply chain and shortage issues. This is especially the case in the U.S., where chipmakers are racing to make products for a range of growing end markets to reduce dependence on overseas supplies.
In its most recent quarterly update, management noted that Lam Research is seeing strong global demand, except in China. The rapid buildout of cloud data centers and the 5G smartphone cycle drive much of the demand and have the company well-positioned for long-term growth. Slowing personal electronic sales will likely remain a headwind, but overall demand looks solid.
Lam Research shares fell 42% last year, creating a better entry point at 12x trailing earnings. The behind-the-scenes company will be powering the digital economy for years to come.
Will Qualcomm Stock Recover in 2023?
QUALCOMM Incorporated (NASDAQ: QCOM) finished the year near a 52-week low and more than 40% below its January 2022 record peak. The manufacturer of advanced chips for smartphones, tablets and commercial wireless got weighed down with the rest of its peers but has a healthy long-term outlook.
First, however, it has to work through a customer inventory issue that is putting new orders on hold. Management said that customer inventory draw-downs would lower revenue by $2 billion in the current quarter and slash EPS by $0.80. And while demand for Android phones has softened, the iPhone 14 launch should help offset near-term challenges in the core semiconductor business.
With the supply chain crisis and a slowdown in handset shipments largely in the rear view mirror, Qualcomm will be hitting the reset button in 2023. The company estimates that its addressable market will expand sevenfold to $700 billion over the next 10 years as global demand for connected devices explodes. It is projecting mid-teens annual revenue growth over the next few years.
Qualcomm stock screams value at less than 10x earnings — and a $3.00 annual dividend to boot.
What is a Good Cybersecurity Stock?
Fortinet, Inc. (NASDAQ: FTNT) is a network and cloud security company selling products and services through a global network of over 20,000 channel partners. It has a customer base of nearly a half million (including most of the Fortune 100) that rely on Fortinet to protect data, detect threats and maintain network integrity. In turn, this translates into steady recurring revenue and strong profit margins. The company is estimated to have grown revenue and profits by 32% and 43%, respectively in 2022.
Given all the recent headlines around cybersecurity, it's no surprise that enterprises are hustling to attain solutions that protect their own customer data and internal systems. The hybrid workforce trend that evolved from the pandemic appears here to stay, which is particularly good news for the industry. IT departments are expected to spend even more on cybersecurity this year, with more than $5 billion slated to go to Fortinet.
With Fortinet, investors are getting a cybersecurity leader and a company that has topped Wall Street earnings estimates every quarter over the last five years. Even after falling 32% in 2022, the stock doesn’t appear cheap at 39x this year’s earnings estimate — but relative to the peer group average, it is a steal. And after completing a 5-for-1 split earlier this year, retail investors can scoop up even more shares of this long-term cybersecurity winner.
