Tech stocks have had a solid run lately. For the past six months, the Technology SPDR (NYSEARCA:XLK) ETF has gained about 9%, and it’s up about 3% in 2015.
Despite the broader run, there are some tech stocks that have missed out. Let’s face it, the sector can be extremely volatile. There are also threats from disruptive technologies — like cloud computing and mobile — that can damage traditional tech operators. Remember Nokia? Or Nortel?
Yes, tech stocks can be scary. But history shows that Wall Street can ignore some real gems. Investors who manage to recognize these oversold stocks stand to profit when the rest of the investing world catches up.
So what are some beaten down tech stocks worth considering? Here are three to consider.
Beaten-Down Tech Stocks to Buy: IBM (IBM)
6-Month Return: -14%
International Business Machines Corp. (NYSE:IBM) can’t seem to get back on track, as the company has posted a string of disappointing earnings reports. But keep in mind that it has a history of being able to adapt to major changes better than most tech stocks.
Besides, IBM has a tremendous platform, which includes high-end services, software (much of which is mission-critical, such as middleware, servers and databases), financing and hardware such as for storage, semiconductors and mainframe systems.
But IBM has also been taking moves to better position itself for growth. To this end, the company recently entered a partnership with Apple Inc. (NASDAQ:AAPL) to develop enterprise apps for mobile devices. In fact, according to last week’s AAPL conference call, it looks like the effort is gaining traction.
IBM also has invested heavily in Big Data and analytics. A key part of this is Watson, which has shown to have wide-spread applications in sectors like healthcare, financial services and retail.
What about the cloud? IBM is taking strides here, too — including a savvy acquisition for SoftLayer, which provided a strong infrastructure for cloud computing. Then there is Bluemix, which helps customers develop applications that can integrate the cloud within traditional IT environments.
IBM stock looks attractive at current levels, with a price-to-earnings ratio of 13. This compares to a P/E of 17 for Microsoft Corporation (NASDAQ:MSFT) and 18 for Oracle Corporation (NYSE:ORCL). But with IBM’s initiatives in critical areas like the cloud, analytics and mobile, there could be some good news in the quarters ahead — and IBM stock should get back to its winning ways.
Beaten-Down Tech Stocks to Buy: Castlight Health (CSLT)
6-Month Return: -24%
When Castlight Health Inc (NYSE:CSLT) went public about a year ago, the offering was-red hot. On the first day of trading, CSLT stock skyrocketed 148%. Since then, however, investors have suffered major losses as the stock dropped from $42 to $9!
However, CSLT still been able to maintain its growth ramp. In the latest quarter, revenues jumped 238% to $12.2 million and the company saw an increase in its customer base from 130 to 159 (a 22% increase).
The CSLT system helps companies optimize their health benefits. Of course, a major benefit is a reduction in overall costs. But CSTL also has proven effective in improving the participation in preventive programs.
But the momentum is likely to accelerate during the next couple quarters. One factoris that this is the period when companies evaluate and select benefit software. What’s more, CSLT stock should get a lift because of the recent launch of its dental product, which will provide another strong revenue stream.
CSLT has about $180 million in the bank and has also seen a reduction in the burn rate. In the latest quarter, it was $7.5 million, down from $19.6 million in the prior quarter. True, CSLT will continue to lose money. But this is normal for high-growth tech stocks in their early stages.
Beaten-Down Tech Stocks to Buy: Yelp (YELP)
6 Month Return: -38%
Yelp Inc (NYSE:YELP) remains the premier mobile app for consumers to find restaurants and other local businesses. But lately, it hasn’t helped much, at least for investors.
It’s true that the latest earnings report was a disappointment, due to a deceleration in growth. But for the most part, it looks like the Street has overreacted in dumping YELP stock.
In the latest quarter, revenues still jumped 56% to $109.9 million and adjusted net income came to 24 cents per share. As a testament to its thriving community, the cumulative reviews jumped 35% to 71 million during the past 12 months.
While other traditional Internet companies have had a tough time transitioning to mobile, this has not been the case with YELP. There are about 72 million monthly mobile visitors and 45% of new reviews come from smartphones.
But for 2015, there may be a boost for YELP stock. That is, the company is increasing its marketing budget from $10 million to $30 million.
But more importantly, YELP stock should benefit from the enormous market opportunity. There is a secular trend in the local market with ad dollars moving from traditional sources, such as the Yellow Pages, to digital platforms. According to YELP, about 30% of the $152 billion in local ad spending will move online by 2017. And given the company’s strong brand and distribution, there’s a good bet that it will get a nice chunk of the revenues.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.