Once again it’s earnings season, and it’s starting to look ugly out there. Tech stocks are taking it on the chin as consumer demand weakens in the aftermath of the pandemic. Inflation is liable to cut that spending further. The result hasn’t been pretty, with the Nasdaq reporting its steepest weekly drop since March 2020. Tech stocks may be feeling the heat right now as vaccines, new Covid-19 treatments and weariness with lockdowns point to a return to normalcy, but there’s one technology segment that’s a solid bet: IT stocks.
One of the biggest trends to emerge as a result of the pandemic was working from home. That helped boost tech stocks. PC sales reversed a decade-long slump and posted double-digit growth. E-commerce surged. With time on their hands and nowhere to go, users signed up for video streaming services at a furious pace. What fell behind was corporate IT spending. However, with workers heading back to offices, it’s expected that IT spending will be ramping up again, exceeding pre-pandemic levels.
As a result, these seven IT stocks are set to profit:
- A10 Networks (NYSE:ATEN)
- Data Storage (NASDAQ:DTST)
- Endava (NYSE:DAVA)
- Grid Dynamics (NASDAQ:GDYN)
- Omnicell (NASDAQ:OMCL)
- PDF Solutions (NASDAQ:PDFS)
- Wavedancer (NASDAQ:WAVD)
Earnings season may still see some weak results from companies on this list, but it’s long-term growth you need to focus on. As all those empty offices start to fill back up with workers, IT spending will follow and IT stocks will reflect that trend.
IT Stocks to Buy: A10 Networks (ATEN)
California’s A-10 Networks is focused on network security: on-premises, cloud and edge. That cloud and edge security has become more important as customers adopt remote and hybrid working arrangements. A10 Networks is proof that the global cuts in IT spending during the pandemic haven’t hit all companies in the sector. In its most recent quarter, the company reported organic revenue growth of 15% year-over-year. Adjusted earnings-per-share of 17 cents per share were up significantly from EPS of 13 cents-per-share the year before.
In addition, while it doesn’t appear on lists of 5G stocks, A10 Networks has expanded into providing 5G security as corporate adoption of the high-speed cellular service ramps up. A10 Networks has been doing so well that last October the company announced a quarterly dividend program, as well as a share repurchase program. Both are good news for shareholders. Over the past 12 months, ATEN stock has delivered a 36% return.
The current Portfolio Grader rating for ATEN stock is “B.”
Data Storage Corp (DTST)
DTST stock represents a real growth opportunity. Many potential investors have been scared away from it, which is understandable. Over the past 12 months it’s down 68%, and DTST earned the dreaded “meme” stock status in 2021. One event last February sent shares soaring 215% over the course of several days before the inevitable correction.
Data Storage is an infrastructure as a service company with a focus on security, data recovery and business continuity. Data Storage shares are down, but that just makes them more attractive with companies beginning to increase their IT spending. Last August, DTST announced quarterly revenue up 76%. That wasn’t a fluke. In November, the company reported revenue up 42% YoY.
Data Storage has strong partnerships with enterprise IT providers, a growing client list with a high contract renewal rate and growing subscription revenue. Don’t make the mistake of writing off this IT stock because of its meme stock status or its poor performance over the past 12 months.
At the time of publication, DTST stock earned a “B” rating in Portfolio Grader.
IT Stocks to Buy: Endava (DAVA)
U.K.-based Endava is a software development company with a focus on digital transformation. It works with companies that are struggling to digitize their business. Endava is well known among IT stocks, with a 20-year history. The company has experience in working with clients in a wide range of sectors and industries, including financial services, telecommunications, retail and healthcare.
With the pandemic kicking off a rush to move services online, Endava thrived. Between the March 2020 market crash and the end of 2021, DAVA stock gained 473%. However, 2022 has seen DAVA tumble by 29%. This dip represents an opportunity for anyone looking at high-performing IT stocks. The push for digital transformation is not going anywhere. Heck, even the construction industry is now feeling the pressure.
The investment analysts polled by the Wall Street Journal have DAVA stock rated as a consensus “buy.” In addition, their average price target of $139.92 offers 23% upside of the current $113.44 price for DAVA shares.
DAVA stock currently earns a stellar “A” rating in Portfolio Grader.
Grid Dynamics (GDYN)
Grid Dynamics is another IT stock that works with companies to assist in their digital transformation. The company’s customers are largely made up of Fortune-1000 U.S. enterprises. Appropriately, for a company with expertise in analytics, cloud and AI, Grid Dynamics is headquartered in Silicon Valley.
Grid Dynamics digital transformation services include enterprise optimization through data analytics and predictive modeling, replatforming legacy IT systems to cloud-based solutions and implementing deep learning solutions.
GDYN stock was on a steep growth trajectory through 2021. It has been caught up in the tech stock selloff this year, but despite that impact, it has still posted 97% growth over the past 12 months. After losing a third of its value since the stat of the year, GDYN is one of the more tempting IT stocks for growth investors.
The current GDYN rating in Portfolio Grader is “A.”
IT Stocks to Buy: Omnicell (OMCL)
Omnicell is unique among this list of IT stocks in that the company could also be considered a healthcare stock. However, the reason for Omnicell’s inclusion is the company’s business of proving hardware and software solutions for pharmacies — in short, “IT” services.
This ranges from software to ensure compliance with regulatory compliance all the way up to advanced robotic solutions for automated pharmaceutical dispensing. Omnicell also provides solutions for connecting pharmacies to EHR (electronic health record) systems.
Last November, Omnicell reported its Q3 2021 results. Revenue was up 39% YoY as more healthcare organizations and pharmacies adopted the company’s solutions. Several weeks later, OMCL stock, which had been in growth mode all year, closed at $183.62, an all-time high. Currently trading for around $148, OMCL stock is down, but with continued demand for its services and solutions its growth story is far from over.
Plug OMCL stock into Portfolio Grader and you’ll find it earns a “B” rating.
PDF Solutions (PDFS)
For the past year or so, one of the headline stories globally has been semiconductor stocks. There is a global shortage of chips with no sign of relief. In the meantime, auto production lines have been shut down, popular consumer electronics are hard to find, and manufacturers are competing against each other for limited supply.
The companies that actually make the semiconductors have been reluctant to build new fabrication plants, and with good reason. A new facility announced last week for Ohio will cost at least $20 billion and won’t be online until 2025.
Enter PDF solutions. No, this is not “PDF” the digital document format. PDF’s Extensio is an analytics platform that chews through all the data captured by semiconductor manufacturers. The system helps to detect critical manufacturing issues early in the process. Ultimately, Extensio delivers improved semiconductor yield, quality and profitability.
PDFS stock has been on rise since 2018. The only major interruptions have been the 2020 market crash, and this year’s selloff of tech stocks — PDFS is down 19% in 2022. The pressure on semiconductor manufacturers will continue for the foreseeable future. One solution is to spend $20 billion and wait years for new fabrication plants to ramp up. Other chipmakers will look at PDF’s solution as a wise investment in wringing more out of the capacity they already have. To me, that makes the rough start for PDFS stock in 2022 an opportunity.
At the time of publication, PDFS stock was rated as “B” in Portfolio Grader.
IT Stocks to Buy: WaveDancer (WAVD)
Virginia-based WaveDancer may have a whimsical new name — after changing it from Information Analysis last year — but this company’s business is dead serious.
WaveDancer is employing blockchain technology to manage supply chain logistics, including security. The company’s solutions helps customers (which include at least one U.S. Government agency) to reduce costs within their supply chain, instantly account for all physical and digital assets, secure against threats (including tampering) and apply AI to extrapolate trends, risks and opportunities.
With the global supply chain in a state of seemingly permanent disruption, this IT stock’s solution is only going to see increased demand going forward. Like many others on this list, WAVD stock has been caught up in this year’s tech stock selloff, but the current discount makes shares even more attractive given their long-term growth prospects.
WAVD stock currently scores an “A” rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in DAVA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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