Computer stocks had an amazing 2020. But that doesn’t mean the party will end in 2021. If there is one thing that the stock market has taught us in the preceding decade, computer stocks are the safest bet in a volatile market. Tech companies have quickly responded to challenges caused by the novel coronavirus pandemic and every recession before it.
Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Facebook, (NASDAQ:FB) and Netflix (NASDAQ:NFLX), also known as the FAANG companies, make up 15% of the S&P 500 index. That kind of dominance is because of strong cash-rich balance sheets and asset-light models. However, computer stocks can have insane valuations at times.
It’s important to keep in mind, though, that value stocks do exist in the sector. And they offer excellent dividend yields and EPS growth as well. This list was curated to ensure that you get to know about computer stocks listed on the major U.S. exchanges. All of the companies on the list have a 5-year EPS growth rate of more than 5% and none have a forward price-to-earnings ratio of less than 30 times.
- Accenture (NYSE:ACN)
- Facebook (NASDAQ:FB)
- Logitech International (NASDAQ:LOGI)
- Infosys (NYSE:INFY)
- Cisco Systems (NASDAQ:CSCO)
Computer Stocks to Buy: Accenture (ACN)
Accenture is a leading global IT services firm offering consulting, strategy, and operational services. It doesn’t feature on many lists as a value play. That’s because ACN stock bounced back quite spectacularly from the market sell-off in March 2020. Shares are now trading near their 52‑week high of $271.18 per share.
However, as David Moadel points out, if you are hoping for shares to bottom out so that you initiate a position, then good luck. Five year EPS growth stands at 9.2%, and the dividend yield is a solid 1.27%.
Out of the last 12 quarters, the company has delivered earnings beats nine times. Last quarter was no exception. The IT consulting giant posted better-than-expected results for its fiscal first quarter ended Nov. 30.
Adjusted profits were $2.17 a share, up 8% year on year, and 6.4% higher than the Street consensus forecast of $2.05 a share. On an interesting note, the company repurchased 3.3 million shares in the quarter for $769 million. Alongside the dividend yield, shareholders must be happy with the capital returns they are getting.
ACN stock trades at 28.8 times forward P/E.
One of the more controversial picks on this list is Mark Zuckerberg’s billion-dollar baby, Facebook. The U.S. House of Representatives is often at odds with Zuckerberg’s tactics, questioning his company’s actions on election interference, free speech, hate groups and fake news.
Naturally, that creates negative headlines for FB stock. Ironically, that makes it even more valuable, since investors have more incentive to dip in when shares lose a bit of steam, maintaining a clear distinction between the company’s operations, which run like a well-oiled machine, and the news items they generate.
Nevertheless, it seems strange that a company boasting a five year EPS growth of 51.6% is trading at 86.4% of its 52-week high. Facebook usually gets slammed from both sides of the aisle for not doing enough to ensure transparency and neutrality in its actions. I guess that’s a price you have to pay when you are the world’s largest online social network, with 2.5 billion monthly active users. Plus, with Instagram, Messenger, WhatsApp, under its wing, the company controls a sizeable chunk of communications apps worldwide.
However, it would be best if you separated the signal from the noise. FB stock is clicking on all cylinders. It has a 12-month consensus price target of $322 per share, a 22.3% premium to the current price. And at a forward P/E of 25.6 times, it’s attractively valued.
Computer Stocks to Buy: Logitech (LOGI)
One name that doesn’t get mentioned enough when it comes to ace computer stocks is Swiss-American manufacturer Logitech. It manufactures personal computer and mobile accessories for navigation, video communication and collaboration. Sales growth over the last five years is excellent – 12.5%. Out of the last 12 quarters, the Swiss manufacturer has delivered earnings beats ten times.
The Swiss computer peripheral maker recently reported a 75% jump in Q2 sales than the prior year. This was the first time that Logitech’s quarterly sales exceeded the billion-dollar mark, coming to $1.26 billion. Meanwhile, Q2 GAAP operating income increased 372% to $322 million, compared with $68 million in the year-ago period.
It also lifted its fiscal year 2021 annual outlook to between 35% and 40% sales growth and between $700 million and $725 million in non-GAAP operating income. So, all things look on the up and up.
LOGI has outperformed the S&P 500 by 556.9% and its sector by 408.2% in the past five years. Shares are trading at 29.3 times forward P/E. Analysts have a 12-month price target of $107 per share, an 8.1% premium to the current price. That may not sound great, but then again, this company is an extremely consistent performer, and investors value that.
Infosys is often seen as the face of business outsourcing to India. Based in Bangalore, the Indian IT services derives 60% of its revenue from North America, providing consulting, managed services and cloud infrastructure services, and business process outsourcing as a service (BPaaS). Revenue growth is solid for the company with the five-year average coming in at 6.9%. With an asset-light business model, it’s not surprising that the gross margin is a very healthy 34.1%.
In the second fiscal quarter, revenue grew sequentially by 4.0% and 2.2% year-on-year in constant currency. Q2 net profit of $653 million represented year-on-year growth of 14.7%. “Our relentless efforts on cost optimization and strengthening operational efficiencies helped by certain cost deferrals led to 270 bps sequential improvement in operating margin to 25.4% and a 300 bps improvement in H1 margins,” said Nilanjan Roy, CFO. The Indian tech giant lifted it’s FY 21 revenue growth guidance upward between 2% and 3% and operating margin guidance between 23% and 24%.
Infosys’ fundamentals look solid. However, there are concerns are emerging regarding overvaluation. Since its March 2020 low, shares gained 170%, and as the company looks to report earnings, it doesn’t look like the momentum will stop. Plus, there are always concerns regarding the long term sustainability of Infosys business model. The company was unable to create domestic demand in India and remains heavily dependent on the U.S. for its revenue.
The Indian IT giant has also faced allegations that its chief executive and chief financial officer took unethical steps to boost revenue and profits. A United States-based rights litigation firm even filed a class-action lawsuit against Infosys for making “false” and “misleading” statements. Despite these concerns, shares have a lot of positive momentum. INFY remains a solid stock to buy for your portfolio but wait for a better price point.
Shares are trading at 27.8 times forward P/E.
Computer Stocks to Buy: Cisco Systems (CSCO)
We polish off this list with the world’s largest hardware and software supplier. Investors recently flocked to CSCO stock after hackers compromised SolarWinds (NYSE:SWI) flagship Orion product to access customers’ IT systems. It was a big blow to the company and naturally led to a lot of damage to SWI stock.
However, CSCO stock already has many positive catalysts apart from the recent hacks impacting SolarWinds’ Network Performance Monitoring software. Its guidance to Q2 2021 is desirable, with revenue expected between $11.7 billion to $12 billion. After a dismal 2020, this will be a great source of relief for the investors. On an annualized basis, sales and EPS are expected to climb 3.8% and 6.3%, respectively.
Out of the last 12 quarters, the company delivered earnings beats 10 times. It has an enviable dividend yield of 3.2% and raised dividends nine consecutive years. Gross margin is 64.1%, head and shoulders above any of its peers. Now here is the most perplexing part, shares are up just 1.3% year to date. You could chalk this up to a lot more exciting startups and concepts emerging during the same time and stealing the thunder.
For instance, the last year saw electric vehicle (EV) stocks and SPAC plays to dominate the markets. Biotech stocks and major pharmaceuticals weren’t far behind either. It’s easy for CSCO to get lost in the shuffle. Compared to a lot of Silicon Valley tech startups, the network solutions provider is ancient. It’s a stable performer that doesn’t come with all the bells and whistles associated with Amazon.
However, stability in a volatile market is something every investor craves. Plus, Cisco’s firewall and software-defined security products are more relevant than ever. If you get all that, and shares still trade at 13.3 times forward P/E, you have a steal on your hands. You can invest in this one with closed eyes.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.