In 2024, the playbook for growth investors is likely to look similar to 2023. Tech stocks are expected to lead the way, and the interest in artificial intelligence (AI) is not expected to decline much.
However, while you can buy Nvidia (NASDAQ:NVDA) and call it a day, it comes with a lofty valuation. That will make it hard for NVDA stock to repeat its performance in 2024. A different option for growth-oriented investors is to look for tech stocks with an AI story that are flying under the radar. This means looking at small- and mid-cap stocks that are primed for growth, especially if interest rates come down.
One way you can look for undervalued tech stocks is with a stock screener. In this case, I was looking for stocks with a low price-to-earnings (P/E) ratio in the technology sector. Sometimes stocks have a low P/E ratio for a reason, and these are still speculative tech stocks. But they each look to have strong upside in 2024 that speculative investors can get behind.
Cerence (CRNC)
Cerence (NASDAQ:CRNC) uses conversational and generative AI to develop intelligent AI assistant solutions to enhance the automotive and mobility user experience. According to the latest information from Cerence, 54% of global auto production uses the company’s technology. This also leads to 78% of the company’s revenue being of the recurring variety.
In the last 12 months, the Cerence stock is down more than 15%, as revenue and earnings have been lower year-over-year. However, this is a profitable company and its forward P/E ratio of around 28x is more attractive than some of the higher valuations that tech stocks are known for.
CRNC stock has a consensus price target of $21.75, which is over 17% higher than its current price. Of the nine analysts who have given the stock a rating, four give it a “Strong Buy.” Plus, 92% of CRNC stock is owned by institutional investors. Some speculative investors may see that as a negative, but it does suggest that the smart money believes in the company.
Sensata Technologies (ST)
Sensata Technologies (NYSE:ST) is best-known for its position in the EV market. There’s a good reason for that. The company has sensors that control over a dozen key automotive systems. However, the company serves a variety of additional markets. Recently, the company launched Sensata INSIGHTS, which uses AI to help convert Internet of Things (IoT) data to usable insight for its customers.
Sensata stock has a forward P/E of around 9.4x. It also has a consensus price target of $42.17 which is a 24.56% upside.
However, strictly from a technical standpoint, you may want to let the stock drift a little lower before taking a position. ST stock is down nearly 25% in the last 12 months and nearly 6% in the last month. It’s also dropped below both short- and longer-term moving averages. That being said, the relative strength indicator is in the mid-30’s, which suggests the stock may be reaching an oversold condition. If you’re a trader, Sensata is one to watch closely.
Digi International (DGII)
Like the other tech stocks on this list, Digi International (NASDAQ:DGII) is a significant player in the IoT arena. By 2030, analysts are forecasting that there will be approximately 30 billion IoT devices on the market. This is everything from EVs to traffic signals, and there will be applications we’re not even considering.
Digi International builds and distributes products such embedded network connections and scalable USB and cell communication modules that will be critical to that buildout. This is a small-cap company that is already profitable and is consistently growing revenue and earnings.
Despite that, DGII stock is down 39% in the last 12 months. As 2023 was a rough year for small-caps, that’s not completely surprising. However, in the next 12 months, the company is projecting earnings growth of more than 10%. Analysts agree and give DGII a “Strong Buy” rating with a consensus price target of $7.80 which is a 65.79% upside from its current level.
On the date of publication, Chris Markoch 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.
