Remember when investors would complain that stocks were too expensive? You should, it was only a few months ago. But the market’s stiff pullback in 2018, especially since the ‘trade craze’ started a month or so ago, has put some great stocks at levels not seen in a while.
Our “Highly-Ranked Undervalued Stocks” screen is a great way to find those possibilities that may be undervalued now, but are primed to move higher when the market gets its act together.
This screen looks for value stocks with:
• Zacks Ranks of #1 (Strong Buy) or #2 (Buy)
• Zacks Value Scores of A or B
• a Zacks Industry Rank in the top 50%
• P/E Ratios less than 20
• PEG Ratios under 1
Below are three tech names that pass this stringent criteria. Click here to see the specifics of all the parameters.
Undervalued Stocks with Strong Zacks Ranks: Micron Technology, Inc. (MU)
Shares of Micron Technology, Inc. (NASDAQ:MU) have surged approximately 75% over the past year, but have slipped more than 20% since mid-March. This recent pullback is part of a much broader slump in technology that has really taken hold after reports of Facebook misusing user data during the presidential election. But in true market fashion, there’s a lot of hyperventilating out there that MU’s best days are in the past.
Well, the Zacks Rank disagrees.
While technology has been taking a bite out of the market of late, earnings estimates for MU have actually advanced in the past 7 days. As a result, the company remains a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for this fiscal year (ending August 2018) is at $10.99 per share, marking gains of 11.8% in the past 60 days and 6.6% in just the past month.
The Zacks Consensus Estimate for next fiscal year (ending August 2019) is less than this year’s at $9.86. but analysts are also raising this number. The guidance has jumped 17.2% in the past 60 days and 13.7% in 30. Plus, we’ve just entered the second half of the company’s fiscal year, so there’s plenty of time to catch up and surprise this year’s expectation.
The consumer electronics landscape has changed significantly since the days when it was primarily PC based. The rise of artificial intelligence, virtual reality and the Internet of Things promises that the situation will continue to change moving forward. Either way, the demand for memory chips continues to be high and won’t slow down anytime soon, which was underscored in Micron’s recent quarterly announcement.
MU reported $2.82 per share for its fiscal second quarter, which was nearly 2.2% better than the Zacks Consensus Estimate and marked a four-quarter average beat of a little more than 8%. But most impressively, the positive surprise was its 11th straight. Revenue surged 58% year over year to $7.35 billion, which also topped our expectation of $7.23 billion.
Undervalued Stocks with Strong Zacks Ranks: Western Digital Corp (WDC)
Western Digital Corp (NASDAQ:WDC) has also taken its lumps during this technology pullback, but the computer storage stalwart is still up approximately 11% this year. Historically, this company was known as a leading producer of hard disk drives (HDD) back in the day when the PC ruled the world. But it evolved to become a major player in NAND products as well through the acquisition of SanDisk a few years back.
Now, it has 7 straight quarters of positive earnings surprises and will be going for it’s 8th when it reports fiscal third quarter numbers later this month. This streak is kept intact by high demand on both the HDD and NAND fronts, which was on full display in its fiscal second quarter report from late January.
Earnings per share in the quarter reached $3.95, or 3.7% better than the Zacks Consensus Estimate. The four-quarter average beat is now 6.43%. Most impressively though, the result marked a nearly 72% surge from the year-earlier period.
Revenue jumped 9.2% to $5.34 billion thanks to solid demand in its end markets for hard drives and flash-based products. The result was also above the Zacks Consensus Estimate at $5.29 billion. The ongoing transformation to 3D NAND technology is expected to be a big driver for top-line growth moving forward.
Earnings estimates have trended higher across the board for WDC. The Zacks Consensus Estimate for this fiscal year (ending June 2018) is at $13.98 per share, marking a gain of nearly 4% in the past 3 months. Expectations for next fiscal year (ending June 2019) are only at $12.33, but it too has been moving steadily higher and is currently up 4.2% in over the last 60 days.
Undervalued Stocks with Strong Zacks Ranks: Lam Research Corporation (LRCX)
When Lam Research Corporation (NASDAQ:LRCX) releases its fiscal third quarter report next week on Tuesday, the wafer fabrication equipment company will be looking to extend an impressive positive surprise streak that has now lasted for several years. Despite the recent pressure in technology, semis continue to hold unlimited potential thanks to relatively new avenues like the data economy. LRCX has been a big player in this area and sees it as important catalyst to its future.
In its fiscal second quarter, LRCX reported earnings per share of $4.34, which was 94% better than the previous year and 26% on top the previous quarter. The result was also more than 17% better than the Zacks Consensus Estimate, marking a four-quarter average beat of nearly 9.2%.
Revenues of $2.58 billion improved 37.1% and 4.1%, respectively, on a year-over-year and sequential basis. It also edged past the Zacks Consensus Estimate of $2.56 billion. It’s revenue drivers include robust equipment demand, a strong memory segment, positive logic and foundry segments, as well as increased adoption of 3D NAND technology.
The Zacks Consensus Estimate for this fiscal year (ending in June) is at $16.76 per share, which has soared by 15.7% in the past 90 days. It has also increased by 1.7% in the last month or so. Our expectations for next fiscal year (ending June 2019) are only at $16.50 so far, but estimates have been jumping here as well. The Consensus has improved 12.2% in three months and 1% in the past 30 days.
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