When investors buy a stock, they schedule a check-in on the company’s fundamental performance four times a year. With the quarterly earnings report upon us, a blowout quarter earns a company an A+ grade. Tech stocks could use the moment to shine above the rest of the market.
The first day of trading on January 2022 started strong. This changed suddenly when worries about high inflation, relentless interest rate hikes this year, and sentiment turned south.
Even though it’s been a tough year so far for tech stocks, investors should consider adding these names to their “buy” lists. Value investors should consider the companies that fell after their earnings reports. It creates a better entry price. Moreover, the drop offers discounts for future disappointments.
Tech stocks have low bar to achieve in their next earnings reports. If a stock beats revenue and earnings expectations in the subsequent quarter, they should see their stocks rise.
Here are seven to consider now:
- Intel (NASDAQ:INTC)
- Microsoft (NASDAQ:MSFT)
- Macom Technology (NASDAQ:MTSI)
- STMicroelectronics (NYSE:STM)
- Seagate (NASDAQ:STX)
- Tesla (NASDAQ:TSLA)
- Western Digital (NASDAQ:WDC)
Tech Stocks to Buy: Intel (INTC)
Intel’s capital expenditure overshadowed its dividend hike, which signaled business confidence. The chip giant raised its dividend by 5% to 36.5 cents a quarter.
In Q4, Intel posted revenue of $20.5 billion, beating its October 2021 guidance by $1.3 billion. It posted earnings per share of $1.13, greatly exceeding October guidance by 35 cents. INTC stock fell from around $52 pre-earnings to $48. The stock is a gift at this price.
Intel’s product roadmap will only get better from here. It will start shipping Sapphire Rapid for select customers in the first quarter. This is the code name for Intel’s next-generation Xeon server. Based on the 10nm enhanced SuperFin process, Intel needs the refresh to get back its lost market share.
In the current first quarter, Intel will introduce its first discrete and accelerated graphics card. Intel Arc Discrete is already shipping to more than 50 new mobile and desktop designs. Samsung, Lenovo (OTCMKTS:LNVGY), Acer (OTCMKTS:ACEYY) and Asus (OTCMKTS:ASUUY) are some of the big names that will offer Arc. Cryptocurrency mining and a chip shortage limited supply for the GPU market. Intel has a chance to turn this into a multi-billion business.
Microsoft (MSFT)
Microsoft posted phenomenal revenue growth, reminding shareholders of the strength of its business. The firm’s revenue grew by a solid 20% from a year ago to $51.7 billion. It posted GAAP EPS of $2.48.
Intelligent Cloud was $18.33 billion of the total revenue. Software and cloud products are typically very profitable businesses. The 46% growth in Azure suggests that Microsoft’s growth will accelerate in 2022. Personal Computing accounted for $17.45 billion in revenue.
Demand shows no signs of slowing. Chief Executive Officer Satya Nadella said the company benefited from the demand for productivity solutions. Although the pandemic drove much of those sales, Microsoft has Power Apps, cloud infrastructure, and business applications to lift future growth.
Speculators who dumped MSFT stock amid Nasdaq’s correction will regret it. The company announced plans to buy Activision Blizzard (NASDAQ:ATVI) for nearly $70 billion to strengthen its metaverse and gaming business.
Microsoft does not know how big the metaverse will become, but it is evolving. As the pandemic eases, the gaming market risks slowing. Still, Microsoft has Cloud products like Office 365 to rely on.
On Wall Street, the average price target is $374.
Macom Technology (MTSI)
In the semiconductor sector, Macom posted strong first-quarter results. Revenue grew by 7.5% from a year ago to $159.6 million. The gross margin rose from 54% last year to 59%. Macom posted operating earnings of $27.1 million.
Net income benefited from a one-time $118.2 million gain from selling Macom’s equity interest in Ampere Computing. The net income of $138.8 million ($1.95 a share), is sharply higher than the $9 million it lost last year.
Looking ahead, CEO Steve Daly expects the company will grow by at least 10% from a year ago. Industrial and Defense is Macom’s biggest market, where it sees growth of 8% to 10%. Telecom is a slight drag, growing only slightly. Data Center also slowed last quarter. Though revenue fell slightly, the rest of the year is brighter. Telecom may grow in the mid-teens or better.
Macom has new products on the market whose sales will trend higher for the balance of the year. For example, its 100G CWDM4 pluggable faced experienced demand softness. But 200G and 400G applications for the data center will lift Macom’s overall results.
Tech Stocks to Buy: STMicroelectronics (STM)
STMicroelectronics, a semiconductor firm that supplies to the electronics applications market, posted strong profitability in Q4.
STM reported revenue of $3.56 billion. The gross margin was 45.2%, while net income was $750 million. For Q1, STM expects net revenue of $3.5 billion and a gross margin of 45%.
In its Q4 presentation, the firm highlighted the 640 bps gross margin improvements. It benefited from favorable pricing, manufacturing efficiencies, and a better product mix. The company posted steady expenses while the net operating expense percentage of revenue fell to 20.2%.
STM is doing more with its capital every quarter. Its margins are rising in all three of its markets: automotive and discrete (ADG), analog, MEMS, and Sensors (AMS), and microcontrollers and digital integrated circuits (MDG).
STM posted an A+ on its report. Gross margins are trending higher and could exceed investor expectations. Revenues will benefit from a price increase. Manufacturing efficiencies will lower operating costs. Higher material prices are on the way, which STMicro did not fully realize yet. Still, the company’s efficiencies will offset higher costs ahead.
Seagate Tech (STX)
Storage supplier Seagate posted revenue of $3.12 billion. The operating margin was 18.6%. Importantly, it posted a GAAP EPS of $2.23 and a free cash flow of $426 million.
CEO Dave Mosley said favorable demand trends would support revenue expanding by 3% to 6%. Gross margins may face pressure as costs increase. Mosley said that customers always require higher capacity storage drives. Seagate will invest for the long term in its factories, ignoring the supply chain disruptions.
Profitability will improve as the company balances disk scales with non-hard disk revenue, such as solid-state disks. SSD is weighing negatively on the overall gross margin for now. As Seagate addresses the underserved markets, SSD profitability should stabilize.
In 2022, Seagate’s 20 terabyte platform is not yet benefiting from strong demand. Customers currently need 18TB drives at the most. Later this year, higher storage needs will lead to stronger 20TB sales. Seagate will increase production of the bigger storage drive to meet the strong demand.
Tesla (TSLA)
Tesla is the incumbent electric vehicle brand in the global market. It proved its dominance after posting revenue growing by 65% from a year ago to $17.72 billion. Q4 gross margin edged higher to 30.6%, up from 30.5% in Q3.
Tesla’s free cash flow more than doubled to $2.78 billion, despite increased capital expenditure. The firm will use its cash to invest in the business while retiring legacy and high-interest debt. Looking ahead, Tesla will not use gimmicks to drive demand. For example, CEO Elon Musk said it is not working on a $25,000 car.
Similar to other vehicle suppliers, Tesla will face supply constraints in the year ahead. TSLA stock fell after the earnings report in reaction to the news. The company’s full self-driving software inclusion and licensing will enhance Tesla’s margins. For example, Tesla will eventually reach Level 4 or Level 5 autonomy. When that happens, other car companies will license Tesla’s FSD instead of developing it.
On Wall Street, analysts have an average $1,092 price target (per Tipranks).
Tech Stocks to Buy: Western Digital (WDC)
Investors sent Western Digital shares lower after the company posted Q2 results. Revenue rose by 22.6% to $4.83 billion. What did markets not like about the report?
WDC posted Q3 revenue guidance in the range of $4.45 billion to $4.65 billion. This is below the consensus of $4.73 billion, disappointing investors. In addition. Non-GAAP EPS will be $1.50 to $1.80, compared to the $1.93 consensus. Markets may have reacted to the new chief financial officer replacement, effective the week of Feb. 7.
New CFO Wissam Jabre has technical experience in the semiconductor market. For example, Jabre worked as vice president of finance at Advanced Micro Devices (NASDAQ:AMD). He worked at Freescale Semiconductor before that, from 2014 to 2014.
While client and consumer end markets are steady, the cloud segment will lift WDC’s growth rate. Cloud accounted for $1.9 billion in revenue, up 89% from a year ago. WDC issued a conservative outlook because one of its very large customers is working through challenges. Western Digital has supply chain constraints to handle in the year ahead. Component costs, due to inflation, may pressure WDC’s profitability.
Look for costs and tight supply easing as the company works closely with its suppliers beyond the next quarter.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
