This earnings season hasn’t been the most upbeat across the board, but there’s one sector that has been putting up consistent solid numbers: technology.
Technology is by far one of my favorite game-changing areas and several of my top picks have reported solid third-quarter earnings that have helped boost the shares nicely.
Plus, each of these companies has their toes in countries around the world, but have managed to hold tough despite the weaker global economy.
Let’s take a look at three steady tech stocks, and see where I believe they are going from here.
IPG Photonics (IPGP)
IPG Photonics (IPGP) has been one of my top picks since July of last year, and I’ve always like the way IPG Photonics plays a number of global trends. IPG Photonics sells technology that brings to mind James Bond, Buck Rogers and possibly even a Pink Floyd show. In one word: lasers.
Lasers have been around for decades and have long been used in manufacturing, but the game-changing advantage of IPG comes in part through displacement as more traditional lasers give way to IPG Photonics’ bread-and-butter fiber lasers.
IPG Photonics reported third-quarter results on Oct. 28. IPG Photonics’ earnings beat the consensus by 8 cents per share, and while revenue came in just shy of expectations, it still increased 16% in the quarter. According to IPG Photonics management, the quarterly strength was driven by continued improvement in metals processing as more manufacturers adopt laser technology, and those already using lasers have been switching to IPGP’s fiber laser products.
In IPG Photonics’ conference call the following morning, management noted there is still plenty of room for IPG Photonics to grow, not only through existing customers but also as new ones come on board. It was also encouraging to see that despite global economic weakness, sales of IPG Photonics’ products showed no weakness in either Asia or Europe. In fact, sales of both high- and low-powered product types saw double-digit gains in the quarter.
IPG Photonics has rebounded nicely from its recent lows and bounced an impressive 13% following earnings. IPG Photonics stock’s valuation is not stretched at 17 times 2015 earnings-per-share estimates of less than $41.5. So, I expect to see IPG Photonics remain sensitive to the changing outlook of the global economy. However, IPG Photonics is still a secular growth story, and I am excited to watch IPG Photonics stock’s current momentum continue to push the prices higher.
SolarWinds (SWI) has a presence in both virtualization and security and offers solid profit potential thanks to dedicated customers and a growth rate that is outpacing the overall industry. SolarWinds sells its products to all shapes and sizes all over the world, and it too hasn’t been hurt by the weakening global economy.
SolarWinds’ third-quarter report also came out on Oct. 28 and shares popped 15% to a new 52-week high the following day. SolarWinds stock has been able to hold on to most of those gains since.
SolarWinds reported earnings of 50 cents per share that beat estimates by 7 cents per share, on a 28% increase in revenue that also beat consensus. SolarWinds’ fourth-quarter guidance was in line with what the Street had been expecting, and SolarWinds management noted that new product launches over the next several quarter will help keep revenue growth strong.
In addition, SolarWinds saw a 29% increase in new business sales due to strength in both commercial and federal government customers. Sales were strong across all geographies, with Latin American sales up a solid 50%.
I was extremely pleased with these results as SolarWinds performed well in a tough quarter for many enterprise software companies. I remain confident that SolarWinds will be able to earn $1.80 a share in fiscal 2014 and $2.10 a share in 2015.
Akamai (AKAM) operates at the intersection of content delivery and network security, and has roughly 135,000 servers across the globe. These servers help Akamai’s customers — including virtually all of the largest media and video-intense companies in the world — bring data faster to the ultimate user (people like you and me).
Akamai is another game-changer that reacted positively to third-quarter results on Oct. 29, popping 9% to a near-term high. Akamai’s share price has pulled back slightly, although it is still holding on to solid gains following the impressive report.
In the most recent quarter, Akamai saw 26% revenue growth overall. Media revenue was up 22% thanks to increased internet usage from social media, gaming and video delivery customers, while service revenues were up 32% as the demand for cloud security continues to thrive. Akamai’s margins were slightly pressure by higher selling expenses, although earnings still managed to grow 24%.
Akamai management provided slightly disappointing fourth-quarter guidance, but I’m not worried as Akamai is impacted by the stronger U.S. dollar. Plus, revenue guidance was strong. I believe Akamai management is simply being conservative in its guidance, and I do not expect the fourth quarter to disappoint investors, especially given Akamai’s current momentum.
Akamai stock is selling at 21 times the reasonable 2015 EPS estimates. So, I continue to recommend Akamai as I believe more buyers will jump on the train quite soon.