Macroeconomic headwinds, including aggressive Fed interest rate hikes, multi-decade high inflation, layoffs in the sector, recessionary concerns, and geopolitical unrest spurred by the Russia-Ukraine war, led to a series of selloffs in tech stocks in 2022. The tech-heavy Nasdaq Composite lost more than 15% over the past year.
However, the industry is poised to witness a massive growth in the long run. New and emerging trends such as big data analytics, automation, virtual and augmented reality, blockchain, IoT networks, and increased adoption of cloud computing are rapidly transforming the tech industry.
Furthermore, the growing adoption of Artificial Intelligence (AI) and its applications is reshaping the face of the industry. According to a report by Exactitude Consultancy, the global market for AI is projected to reach $521.30 billion by 2028, growing at a 35% CAGR.
On top of it, investors’ interest in tech stocks is evident from the SPDR NYSE Technology ETF’s (XNTK) 12.5% returns over the past three months.
Given the industry’s long-term growth prospects, it could be wise to invest in fundamentally strong tech stocks Leidos Holdings, Inc. (LDOS), Jabil Inc. (JBL), Box, Inc. (BOX), and Celestica Inc. (CLS) this week. However, Riot Platforms, Inc. (RIOT) might be best sold short due to its weak financials and bleak growth prospects.
Stocks to Buy:
Leidos Holdings, Inc. (LDOS)
LDOS offers services and solutions in the defense, intelligence, civic, and health sectors. It operates through three segments, Defense Solutions; Civil; and Health. It also provides cloud computing, application modernization, DevOps, network modernization, environment, energy, and infrastructure services.
On February 6, 2023, the Leidos Partnership for Defense Health (LPDH) declared that as part of its most recent double-wave deployment, an additional 12,000 physicians and providers received the MHS GENESIS electronic health record. With each deployment, MHS GENESIS successfully applies industry best practices to boost clinical results. This could strategically benefit the company.
On October 31, 2022, the company announced the successful acquisition of Cobham Aviation Services Australia’s Special Mission business. This should aid LDOS in entering the Australian aviation market, enabling it to utilize state-of-the-art control systems and sensors on board aircraft to produce mission-critical outcomes for the Australian Government.
LDOS’ trailing-12-month levered FCF margin of 7.46% is 134.3% higher than the 3.19% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 16.63%, 7.01%, and 5.21% compare to the industry averages of 13.99%, 6.76%, and 5.20%, respectively.
For the third quarter that ended September 30, 2022, LDOS’ revenue from the Defense Solutions segment grew 3.3% from the year-ago value to $2.08 billion, while revenue from the Civil segment rose 10.4% year-over-year to $874 million. The company’s total revenues increased 3.6% year-over-year to $3.61 billion.
Furthermore, as of September 30, 2022, LDOS’ total current assets stood at $3.84 billion as compared to $3.62 billion on December 31, 2021.
The consensus revenue estimate of $15.04 billion for the current fiscal year (ending December 2023) reflects a 5% year-over-year improvement. The consensus EPS estimate of $6.84 for the ongoing year indicates a 7.4% rise from the previous year. Moreover, LDOS surpassed its consensus revenue and EPS estimates in three of four trailing quarters.
Shares of LDOS have gained 14.9% over the past year to close the last trading session at $100.82.
LDOS’ POWR Ratings reflect its strong outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Value, Stability, and Quality. In the 79-stock Technology – Services industry, it is ranked #4.
Beyond what we stated above, we also have LDOS ratings for Sentiment, Growth, and Momentum. Get all LDOS ratings here.
Jabil Inc. (JBL)
JBL is a global provider of manufacturing services and solutions. It operates through two segments, Electronics Manufacturing Services; and Diversified Manufacturing Services. The company provides electronics design, production, product management services, and electrical circuit design.
On January 18, 2023, JBL announced that its renowned optical design center in Jena, Germany, is demonstrating a prototype of a next-generation 3D camera with the capacity to seamlessly operate in both indoor and outdoor environments up to a range of 20 meters.
In addition to altering the anticipated industry norm for mid-range ambient light tolerance, this new generation of 3D cameras would also bring in a new paradigm of sensors capable of operating in all lighting conditions, significantly aiding JBL’s growth.
Also, on November 14, 2022, the company announced a new design center in Wroclaw, Poland, which would create cutting-edge technology for multiple industries. JBL’s design capabilities in concept feasibility, development engineering, industrialization, material technology, and advanced manufacturing technology are expected to be strengthened by the launch of this facility.
The stock’s trailing-12-month ROCE, ROTC, and ROTA of 41.31%, 15.90%, and 4.77% compare to the industry averages of 4.87%, 2.97%, and 1.42%, respectively. Moreover, the company’s trailing-12-month asset turnover ratio of 1.81x is 192.7% higher than the 0.62x industry average.
For the fiscal 2023 first quarter that ended November 30, 2022, JBL’s net revenue increased 12.5% year-over-year to $9.64 billion, while its gross profit grew 10.1% from the year-ago value to $743 million. The company’s non-GAAP core operating income stood at $461 million, up 15.3% year-over-year.
Also, the company’s non-GAAP core earnings and non-GAAP core EPS rose 12.3% and 20.3% from the prior year’s period to $319 million and $2.31, respectively.
Analysts expect JBL’s revenue to increase 3.1% year-over-year to $34.51 billion for the fiscal year ending August 2023. The company’s EPS for the current year is expected to rise 9.5% from the prior year to $8.38. Also, JBL surpassed the revenue and EPS consensus estimates in all four trailing quarters, which is impressive.
The stock has gained 15.7% over the past month and 35.3% over the past six months to close the last trading session at $82.65.
JBL’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
JBL has a B grade for Momentum, Value, and Quality. It is ranked #7 of 79 stocks in the Technology – Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see JBL ratings for Growth, Stability, and Sentiment here.
Box, Inc. (BOX)
BOX is a cloud content management platform that allows businesses of all sizes to manage and share content from any location and on any device. It provides web, mobile, and desktop apps for cloud content management on a platform for designing custom applications and industry-specific capabilities.
On December 13, 2022, BOX announced the availability of several enhancements to Box Shield, the company’s flagship security solution for safeguarding content in the cloud. BOX also strengthened its platform’s authentication and verification processes to give clients more security against unwanted account access. This should boost the company’s profitability.
Moreover, on November 17, the company announced the general availability of an upgraded Box app for Zoom Video Communications, Inc. (ZM), allowing users to save specific Zoom recordings to BOX automatically. This would enable the joint customers to manage their content in one place while preserving enterprise-level security, compliance, and control within Zoom.
The company intends to benefit from its ongoing efforts to enhance third-party app integrations for a better user experience.
BOX’s trailing-12-month levered FCF margin of 31.22% is 354.6% higher than the 6.87% industry average. Moreover, its trailing-12-month asset turnover ratio of 0.79x compare to the industry average of 0.62x.
BOX’s revenue increased 11.6% year-over-year to $249.95 million in the third quarter of the fiscal year 2023, which ended on October 31, 2022. Its gross profit grew 15.2% from the year-ago value to $185.46 million.
The company reported a net income of $9.91 million, compared to a loss of $13.86 million in the previous year’s quarter. Its EPS came in at $0.03, compared to a loss per share of $0.12 in the year-ago period.
The consensus revenue estimate of $990.59 million for the fiscal year ended January 2023 indicates a 13.3% year-over-year improvement. Likewise, the consensus EPS estimate of $1.17 for the same year reflects a growth of 37.9% from the previous year. Also, the company surpassed its consensus revenue and EPS estimates in three of four trailing quarters.
Shares of BOX have gained 18.1% over the past month to close the last trading session at $33.75.
BOX’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and Quality and a B for Value. Within the same industry, it is ranked #8 of 79 stocks.
To see additional POWR Ratings for Sentiment, Stability, and Momentum for BOX, click here.
Celestica Inc. (CLS)
Headquartered in Toronto, Canada, CLS offers hardware platform and supply chain solutions. It operates through two segments, Advanced Technology Solutions; and Connectivity & Cloud Solutions. The company also provides enterprise-level data communications and information processing infrastructure.
On December 8, 2022, CLS announced that the Toronto Stock Exchange (TSX) had approved the company’s notice to begin a Normal Course Issuer Bid. CLS completed repurchasing up to 8 million subordinate voting shares on the open market under the Bid. The company views the purchases as a wise use of its funds and in its best interests.
In addition, on October 18, the company introduced the DS1000 high-performance Gigabit Ethernet Layer 3 switch. It uses OCP’s ONIE, a potent hardware interface, which is both sturdy and small, making it flexible for both the data center and the Edge. This latest addition to CLS’ Hardware Platform Technologies (HPS) portfolio might benefit the company significantly.
CLS’ trailing-12-month asset turnover ratio of 1.41x is 127.3% higher than the 0.62x industry average. Furthermore, its trailing-12-month ROCE, ROTC, and ROTA of 9.27%, 7.14%, and 2.59% compare to the industry averages of 4.87%, 2.97%, and 1.42%, respectively.
For the fiscal fourth quarter that ended December 31, 2022, CLS’ revenue grew 35.1% year-over-year to $2.04 billion, while its adjusted gross profit rose 31.6% from the prior year’s quarter to $191.80 million. Also, the company’s adjusted EBIAT increased 45.1% from the year-ago value to $107.80 million.
In addition, CLS’ adjusted net earnings stood at $68.40 million, a 23.9% increase year-over-year, while its adjusted EPS stood at $0.56, up 27.3% from the prior year’s period.
Analysts expect CLS’ revenue to increase 4.9% year-over-year to $7.60 billion for the fiscal year ending December 2023. The company’s EPS for the same year is expected to rise 6.5% from the previous year to $2.02. Furthermore, CLS surpassed its consensus EPS in all four trailing quarters, which is impressive.
CLS has gained 17.5% over the past six months to close the last trading session at $13.39.
CLS’ POWR Ratings reflect its promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and Value and a B for Momentum and Sentiment. It has topped the 79-stock Technology – Services industry.
Click here to see additional POWR Ratings for Stability and Quality for CLS.
Stock to Avoid:
Riot Platforms, Inc. (RIOT)
RIOT focuses on bitcoin mining operations in North America. It operates through Bitcoin Mining; Data Center Hosting; and Electrical Products and Engineering segments. The company operates approximately 30,907 miners.
The stock’s trailing-12-month gross profit margin of 40.48% is 17.2% lower than the 48.92% industry average. Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 36.07%, 10.57%, and 25.68% compare to the industry averages of 4.87%, 2.97%, and 1.42%, respectively.
For the third quarter that ended September 30, 2022, RIOT’s total revenue declined 28.6% year-over-year to $46.29 million. The company’s operating loss widened 864.8% year-over-year to $40.01 million., Its adjusted EBITDA decreased 99.6% year-over-year to $166,000.
Also, the company’s net loss and net loss per share worsened 138.3% and 50% from the prior-year period to $36.57 million and $0.24, respectively.
Analysts expect RIOT’s revenue to decline 38.9% year-over-year to $55.52 million in the fiscal fourth quarter that ended December 2022. The company is expected to report a loss per share of $0.16 for the same quarter. Furthermore, RIOT missed its consensus EPS in three of four trailing quarters, which is disappointing.
Also, RIOT’s revenue for the first quarter (ending March 2023) is expected to decrease 11.7% year-over-year. Also, the company is expected to report a loss per share of $0.09 for the ongoing quarter. The stock has slumped 39.5% over the past six months and 71.4% over the past year to close the last trading session at $5.51.
RIOT’s bleak prospects are apparent in its POWR Ratings. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
The stock has an F grade for Stability, Quality, and Sentiment. Within the same industry, it ranks last among 79 stocks.
Beyond what we stated above, we also have RIOT’s ratings for Value, Growth, and Momentum. Get all RIOT ratings here.
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LDOS shares were trading at $101.27 per share on Monday morning, up $0.45 (+0.45%). Year-to-date, LDOS has declined -3.73%, versus a 7.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal’s passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor’s degree in finance and is pursuing the CFA program.
She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More…
