- Dropbox (DBX): Markets do not recognize the growth in its file collaboration solution
- Ford Motor (F): Supply constraints temporarily limit revenue growth
- Micron Technology (MU): Favorable NAND and DRAM product mix will increase profits
- Qualcomm (QCOM): 5G smartphone adoption will increase sales
- Qorvo (QRVO): Markets over-estimate the weak Wi-Fi and 5G sales
- Roku (ROKU): Streaming demand will only increase
- SentinelOne (S): Cybersecurity needs will grow
Late last year, few investors recognized the severity of inflation rates. Sudden panic selling followed when markets rushed to price in the Federal Reserve’s interest rate increases in 2022, and investors started looking for cheap stocks to buy.
Stocks that investors would once pay any price fell out of favor. Cheap stocks became cheaper. After steep selling, especially in the technology sector, cheap stocks are in oversold territory. Semiconductor stocks are in the bargain bin and are on the top of the list of cheap stocks to buy.
Investors need to choose companies whose shares are out of favor but whose future growth story is stronger than ever. The pandemic temporarily damaged the supply chain. This disrupted supply, limiting the availability of key components. Russia’s invasion of Ukraine worsened the supply chain. Ships cannot sail through the Black Sea. In the near term, companies unable to sell products due to the shortage will report weak revenue.
Perceptive investors should take advantage of the market’s lack of patience and inability to anticipate growth ahead. Once markets realize growth will return, the stocks will break out.
|F||Ford Motor Co.||$15.67|
Cheap Stocks to Buy: Dropbox (DBX)
File-sharing and cloud collaboration supplier Dropbox (NASDAQ:DBX) reported fourth-quarter revenue up by 12.2% from a year ago to $565.5 million. Annual recurring revenue topped $2.261 billion. GAAP gross margin rose slightly to 79.5%, up from 79% last year. DBX stock failed to rally despite the surprisingly strong quarterly results. The company announced a stock buyback plan by adding another $1.2 billion for repurchasing.
Dropbox envisions its file-sharing service will evolve from syncing files to organizing a user’s cloud content. For example, users will get a universal search. Furthermore, they will have one home screen to view all the content. Naysayers will cite Microsoft’s (NASDAQ:MSFT) OneDrive and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Drive as file-sharing alternatives. Yet Dropbox does not force users into a walled garden.
Users will embrace managing PDF documents requiring digital signatures. Dropbox will help creators on its platform to monetize them. This will appeal to casual creators, such as small business owners, podcasters, or social media users. DocSend and HelloSign are promising tools that support a digitalized workflow. Remote work and virtual meetings will not go away. This trend will support the sales of Dropbox’s electronic signing solutions.
Ford Motor Co. (F)
Ford Motor Co. (NYSE:F) reported a sharp drop in March 2022 sales. Markets reacted negatively by sending F stock lower. The chip shortage will hurt unit sales for longer than investors will like.
Ford reported 159,328 vehicle sales in March. Truck sales dropped by 34.4% to 74,420 units. Still, the F-Series is a smashing success story. The company reported a new record of 50,000 retail orders in March, up from 38,000 last year. The widening gap between strong demand and falling supply will only delay profit realization. Ford will need a few months before realizing revenue.
In the electric vehicle space, Mustang Mach-E sales rose by 18.1% from a year ago. So far, Ford issued no major recalls for Mach-E that would weaken customer confidence. By 2025, Ford’s investments in battery electric vehicle technology will pay off. In general, its $50 billion investment in EVs through 2026 will pay off.
Ford’s management is determined to catch up to Tesla (NASDAQ:TSLA). Since F stock trades at a fraction of Tesla’s market capitalization, markets are not convinced Ford will succeed. They are likely mistaken.
Micron Technology (MU)
Micron Technology (NASDAQ:MU) posted strong quarterly results on March 29. At first, markets sent MU stock to above $85. Days later, stocks slumped to around $72.
In the second fiscal quarter of 2022, Micron reported revenue growing by a massive 24.8% from a year ago to $7.79 billion. It earned $2.14 per share (non-GAAP). For the third quarter, Micron expects revenue of around $8.7 billion. The gross margin will be 48%, up sharply from 32.9% in the second quarter of 2021. Micron’s post-earnings slump is puzzling. The market’s lack of confidence suggests brief breakouts and then profit-taking.
Investors are underestimating Micron’s operational performance excellence. President and Chief Executive Officer Sumit Sadana said the company ramped its 1-alpha and 176-layer NAND. Gross margins may exceed the 48% guidance. Still, Micron realized its cost improvements in the quarter. It plans to increase capital expenditure to support its NAND business. In addition, the NAND business will grow faster than the DRAM (memory) business.
Micron expects flat personal computer sales growth, although it will benefit from the enterprise and desktop product mix. By 2022, strong data center sales will lead to a spike in chip sales.
Cheap Stocks to Buy: Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) tried many times since November to break out above $190. After failing, markets duped QCOM stock. Markets anticipate a slowdown in smartphone sales will hurt Qualcomm chip sales.
On April 4, Qualcomm said it completed its acquisition of the Arriver business from SSW Partners. This will help deliver competitive Advanced Driver Assistance System (ADAS) solutions to automakers. The content for semiconductors per vehicle is on an upward trajectory.
Qualcomm cannot afford to rely on smartphones for growth. With Arriver’s Driver Assistance assets, Qualcomm will integrate it with its Snapdragon Ride Platform. The chip shortage is only delaying the implementation of ADAS. When companies fulfill pent-up demand, QCOM stock will rise on accelerated profit growth.
In the smartphone space, President and CEO Cristiano Amon said that the company benefited from tailwinds in China. The addressable market in the country is $10 billion. Qualcomm’s Chinese customers include OPPO, Vivo and Xiaomi (OTCMTKS: XIACY). They are growing market share, which indirectly benefits Qualcomm.
Qorvo (NASDAQ:QRVO) stock peaked last summer before falling into a sustained downtrend. When Russia invaded Ukraine, markets worried about Qorvo’s exposure to the region. Investors may assume sales exposure of around 3%. This assumes Russia’s smartphone market is that percentage. Qorvo trades at a very low P/E of around 11. This suggests the market is more than priced in the downside sales risks ahead.
CEO Bob Bruggeworth said that 5G will drive between 700 million to 750 million in phone sales. About 50% of phones its China customers produce are exported. Since most of them are 4G, Qorvo has a revenue expansion opportunity. As 5G rolls out worldwide, the company will benefit from the next generation of 5G smartphone sales.
In the Wi-Fi market, Qorvo expects to benefit from a multi-year trend. For example, the market is transitioning from Wi-Fi 6 to 6E. It already started sampling Wi-Fi 7. Investors should expect a delay in the adoption of the latest technology due to supply constraints. Once it eases, Qorvo will experience growth in this segment.
In February, Roku (NASDAQ:ROKU) spooked investors when it posted revenue growth of 33.1% to $865.3 million. For the first quarter of the year, Roku expects revenue of $720 million, falling short of consensus. It will lose up to $30 million.
Investors need to exclude 2020 in year-over-year comparisons. The pandemic skewed results. For example, revenue in 2021 of $1.12 billion rose by 145, compared to $1.12 billion in 2019. This suggests that Roku is in a better position than two years ago. It also ended the quarter with $2.146 billion, double the cash on hand from a year-ago period.
Roku may exceed market expectations on 25% growth going forward. Assuming minimal disruptions in the supply chain for devices and televisions, the company may report a stronger quarterly report. Roku designed its TV box and operating system with monetization in mind. The platform is accommodative in supporting external service providers. Due to its stable and better performing platform, televisions powered by Roku’s O/S are appealing.
Streaming is not going away. Roku will benefit from accelerating customer growth.
Cheap Stocks to Buy: SentinelOne (S)
In the cybersecurity market, investors overlook SentinelOne (NYSE:S). In the fourth quarter, it posted revenue increasing by 120% from a year ago to $65.6 million. Annual recurring revenue rose by 123% to $292 million. In fiscal 2022, SentinelOne expects revenue of $366 million to $370 million.
In the last several quarters, the company invested effectively to train staff. It worked hard in terms of onboarding, training, and enablement. As a result, its partner ecosystem benefited. New sales representatives demonstrated increasing productivity. During that time, the business also shifted. Staff needed to apply their expertise in the Active Directory structure. Customers are more concerned about identity in cybersecurity. Looking ahead, customers will want SentinelOne’s assistance in managing risk within Active Directory. This will protect customers from vulnerabilities related to configuration mismatches.
Investors should expect SentinelOne’s sales team to drive sales. The company doubled its sales force last year. Its strong channel ecosystem will enable the sales team to win customers and upsell solutions, lifting operating margins.
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.