Returns as of 12/27/2021
Returns as of 12/27/2021
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With the tech-heavy Nasdaq having outperformed the general markets over the past few years, you might not think there are any cheap tech stocks left. However, the recent tech sell-off has caused a few to fall toward bargain levels.
The following three tech stocks are strong performers in their respective industries. While tax-loss selling could depress their valuations for the rest of December, these bargain-priced tech stocks look primed for a bull run in 2022.
Image source: Getty Images.
In recent months, the telecom sector has come under severe pressure. Investors seem to think that the market is now saturated with smartphone and broadband subscriptions, leaving the remaining telecom giants to fight over a smaller pie. Recent aggressive promotions out of U.S. cell phone carriers have only augmented this fear.
Yet if there is a price war over market share, T-Mobile (NASDAQ:TMUS) seems well positioned to be one of the winners. Thanks to its 2020 acquisition of Sprint and some savvy spectrum investments, T-Mobile has a two-year lead in 5G deployment. It just completed its nationwide rollout of midband spectrum, covering 200 million people, which will give T-Mobile customers speeds markedly higher than 4G. Competitors Verizon and AT&T won’t be able to match it for at least two years, and even then, T-Mobile believes it will have reached 300 million people with mid-band 5G by that time.
Though the stock is down some 20% since the summer highs, T-Mobile’s management has remained confident in its long-term targets. Those long-term targets project a big increase in free cash flow in 2023, once the company completes its full integration of the Sprint assets sometime next year. In 2023, management has projected $13 billion to $14 billion in free cash flow, on the way to more than $18 billion in free cash flow by 2026. Meanwhile, T-Mobile’s market cap is only about $150 billion, so the company is trading at just 11 times 2023 free cash flow and less than eight times its 2026 free cash flow. Share repurchases should start by 2023 but could be moved up to next year if the company moves more quickly than expected.
Despite the promotional environment, T-Mobile has been hitting its quarterly projections, so there’s no reason to doubt this management team. That makes T-Mobile a bargain-priced telecom leader heading into 2022.
The accelerated digitization of the economy and rise of big data decision-making should fuel enterprise and cloud server growth, benefiting server manufacturer Super Micro Computer (NASDAQ:SMCI). Super Micro has had a difficult few years, recovering from an accounting scandal, a delisting, as well as accusations that its servers could be hacked by Chinese manufacturers — a charge it has always denied and has never been proven. In addition, Super Micro has been building out a new Taiwan campus, to supplement its main headquarters in Silicon Valley.
All of the above have contributed to a stock that trades at less than 13 times this year’s earnings estimates and around 10 times 2023 earnings estimates.
Yet the company has already fixed its accounting procedural hurdles (there were never any fabricated sales or earnings) and was relisted to the Nasdaq back in January 2020. The story about potential hacking never bore any real evidence and was denied by both Super Micro and its large FAANG customers. Meanwhile, now that the Taiwan campus buildout is completed, that will open up its products to Asian customers and cloud giants. Super Micro has also been expanding its product set, from server components to full enterprise systems, now to cloud systems, software, and services.
Last quarter, revenue grew 35%. Next quarter’s guidance was for 39% growth. Full-year 2022 revenue (ending in June) is projected to be up 24%. CEO Charles Huang has outlined a $10 billion revenue target in the next few years, up from just $3.8 billion over the past 12 months.
If the company is successful in reaching those targets, Super Micro is a screaming bargain today. With growth momentum picking up, I wouldn’t be surprised to see it reach that $10 billion and for shareholders to benefit handsomely.
Finally, European holding company Prosus (OTC:PROSY) is an easy bargain today. Prosus was spun out of South African media company and venture investor Naspers (OTC:NPSNY) in 2019 to hold the company’s non-South African investments. About 75% of those assets today are held in Chinese tech giant Tencent (OTC:TCEHY), into which Naspers invested in 2001 and in which it still owns a 28.9% stake. That investment has grown into a stake worth about $160 billion today.
The thing is, Prosus only trades at a market cap of $116 billion, leaving 38% upside to its Tencent stake alone. Meanwhile, that bargain-basement valuation also doesn’t count any of Prosus’ other listed and unlisted assets, which total about $49 billion in value.
That means Prosus is trading at just a little over 50% of net asset value. And Naspers, which owns a stake in Prosus that entitles it to about 41% of the company’s assets, trades at an even larger discount.
Tencent is down about 25% this year as the Chinese Communist Party has engaged in a regulatory assault on its tech industry. Yet for those who think that effect may be waning next year, investors in Naspers and Prosus may not only get the benefit of a Tencent recovery in 2022, but a potential closing of this significant discount as well.
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Stock Advisor launched in February of 2002. Returns as of 12/27/2021.
Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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