The Fed’s aggressive monetary policy stance led to the sell-off in tech stocks since last year. However, given the scope for long-term growth, the tech industry is well-positioned to deliver solid returns. Therefore, I think it could be wise to buy fundamentally strong tech stocks Cisco Systems, Inc. (CSCO), Nokia Oyj (NOK), and Juniper Networks, Inc. (JNPR).
Let’s discuss why the tech industry is well-positioned for growth.
The Federal Reserve’s aggressive rate hikes since last year meant that the high-growth tech stocks witnessed a correction in their share prices. Tech stocks usually command a premium in the stock market as the market believes that these companies have the potential for growth.
Enterprises across various industries have been spending on their digital transformation. Investments in cloud computing, software, cyber security, artificial intelligence (AI), the Internet of Things (IoT), and others have been rising.
The spending on new technology is expected to enhance further as more companies use these advanced technologies for conducting their daily business.
While rising borrowing costs might keep the industry under pressure in the near term, the growing demand for anywhere/anytime technology access and rising investments are expected to fuel the rebound of tech stocks. The global technology market is expected to expand at a CAGR of 25.7%, reaching $3.17 billion by 2027.
Amid this backdrop, it could be wise for investors to buy fundamentally strong stocks CSCO, NOK, and JNPR.
Cisco Systems, Inc. (CSCO)
CSCO designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry worldwide.
In terms of the trailing-12-month net income margin, CSCO’s 21.26% is 686.6% higher than the 2.70% industry average. Its 11.79% Return on Total Assets is significantly higher than the 1.15% industry average. Likewise, its 27.92% trailing-12-month Return on Common Equity is 661.5% higher than the industry average of 3.67%.
On February 27, 2023, CSCO announced its partnership with Mercedes-Benz to provide an optimal mobile office experience in its new Mercedes-Benz E-Class vehicles.
CSCO’s Executive Vice President & General Manager, Security & Collaboration, Jeetu Patel, said, "The mobile office cannot progress without the reliable and secure collaboration technology that only Cisco can provide. This partnership with Mercedes-Benz, a leader in automotive luxury, marks a big step forward in delivering the flexibility that the hybrid workforce demands."
For the fiscal second quarter that ended January 28, 2023, CSCO’s total revenue increased 6.9% year-over-year to $13.59 billion. The company’s non-GAAP operating income rose 1% from the prior-year quarter to $4.40 billion. Its non-GAAP net income rose 2.6% year-over-year to $3.64 billion.
In addition, its non-GAAP EPS came in at $0.88, representing a 4.8% increase from the prior-year quarter.
Analysts expect CSCO’s EPS and revenue for the quarter ending April 30, 2023, to increase 11.3% and 11.9% year-over-year to $0.97 and $14.36 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 19.6% to close the last trading session at $50.94.
CSCO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the B-rated Technology – Communication/Networking industry, it is ranked #3 out of 49 stocks. The company has an A grade for Quality and a B for Momentum, Stability, and Sentiment. We have also given CSCO grades for Growth and Value. Get all CSCO ratings here.
Nokia Oyj (NOK)
Headquartered in Espoo, Finland, global telecommunications company NOK provides mobile, fixed, and cloud network solutions. The company operates through four segments: Network Infrastructure, Mobile Networks, Cloud and Network Services, and Nokia Technologies.
In terms of the trailing-12-month EBIT margin, NOK’s 10.95% is 135.5% higher than the 4.65% industry average. Its 17.06% trailing-12-month net income margin is 531.2% higher than the 2.70% industry average. Likewise, its 9.90% trailing-12-month Return on Total Assets is 763.5% higher than the industry average of 1.15%.
On February 27, 2023, NOK announced its contract with MTN South Africa as one of its 5G Radio Access Network (RAN) equipment providers. President of Mobile Networks at NOK, Tommi Uitto, believes that this strengthens NOK’s market position in South Africa and helps MTN deliver superior 5G experiences to its subscribers.
Moreover, the company’s AirScale portfolio will improve the coverage and capacity of MTN’s network performance while contributing to reduced carbon emissions.
NOK’s net sales for the fourth quarter ended December 31, 2022, increased 16.1% year-over-year to €7.45 billion ($7.99 billion). Its gross profit increased 25.8% year-over-year to €3.19 billion ($3.42 billion).
Additionally, its profit for the period increased 363.5% year-over-year to €3.15 billion ($3.38 billion), while its EPS came in at €0.56, representing an increase of 366.7% from the prior-year quarter.
Analysts expect NOK’s EPS and revenue for the quarter ending March 31, 2023, to increase 10.9% and 9.5% year-over-year to $0.08 and $6.15 billion, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Over the past three months, the stock has fallen 0.2% to close the last trading session at $4.57.
NOK’s strong outlook is reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It is ranked #4 in the same industry. The company has an A grade for Value and a B for Growth, Momentum, and Sentiment. Click here to see the other ratings of NOK for Stability and Quality.
Juniper Networks, Inc. (JNPR)
JNPR designs, develops, and sells network products and services worldwide. The company offers routing products, such as ACX series universal access routers; MX series Ethernet routers; PTX series packet transport routers; wide-area network SDN controllers; and session smart routers.
On March 8, 2023, JNPR announced that Shaare Zedek Medical Center has embarked on a total digital transformation of operations to provide superior experiences and exceptional care to its patients using Juniper’s data center solutions.
JNPR’s Vice President, Enterprise, EMEA, Gos Hein van de Wouw, believes that the company will provide high-performance technologies for Shaare Zedek Medical Center to ensure that it is fully prepared for continued digital acceleration. This is expected to generate solid revenue for the company.
In terms of the trailing-12-month EBITDA margin, JNPR’s 14.28% is 44.8% higher than the 9.87% industry average. Its 8.88% trailing-12-month net income margin is 228.7% higher than the 2.70% industry average. Likewise, its 10.71% trailing-12-month Return on Common Equity is 192.3% higher than the industry average of 3.67%.
JNPR’s total net revenues increased 11.5% year-over-year to $1.45 billion for the fourth quarter that ended December 31, 2022. Its non-GAAP operating income increased 13.5% year-over-year to $276.50 million.
Its non-GAAP net income increased 12.1% year-over-year to $213.80 million. Additionally, its non-GAAP EPS came in at $0.65, representing a 12.1% increase from the prior-year quarter.
JNPR’s EPS and revenue for the quarter ending March 31, 2023, are expected to increase 39% and 14.6% year-over-year to $0.43 and $1.34 billion, respectively. Over the past six months, the stock has gained 19% to close the last trading session at $31.99.
JNPR’s POWR Ratings reflect its solid prospects. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. Within the Technology - Communication/Networking industry, it is ranked #7.
JNPR has a B grade for Growth, Momentum, and Quality. To see the additional POWR Ratings of JNPR for Value, Stability, and Sentiment, click here.
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CSCO shares rose $0.28 (+0.55%) in premarket trading Tuesday. Year-to-date, CSCO has gained 8.33%, versus a 3.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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