The Top Cheap Stocks to Invest In for 2017?
What are the cheapest tech stocks to invest in 2017? At the list of cheap tech stocks at the bottom of this article, naturally. But there’s more to cheap tech stocks than just a list of stock symbols. If you’re thinking of investing in tech stocks and want to find the best cheap tech stocks with the greatest potential for big gains, it’s important to see how technology-sector stocks are performing in the grand scheme of things.
Even Cheap Tech Stocks Help Lift Markets Higher
It may drawn-out, tired, overvalued, and one of the most hated bull-markets in history, but there are some sectors that continue to perform well.
In fact, when it comes to rising earnings and revenue (something that has become a rarity on Wall Street), the technology sector is leading the way. With earnings season winding down, it’s clear to see that technology stocks are helping support the long-in-the-tooth bull market.
On Tuesday, August 23, gains in the sector helped lift the NASDAQ to a record intra-day high. Looking ahead, there’s plenty of reason to be optimistic about tech stocks in the second half of 2016 and in 2017.
For starters, tech stocks are actually very profitable. Eighty-two percent of technology stocks have reported earnings above estimates; that’s second only to health care at 86%. On top of that, tech stocks have reported the biggest upside aggregate difference (+7.2%) between actual earnings and estimated earnings. (Source: “Earnings Insight,” Factset, August 5, 2016.)
This is a big deal when you consider that the second-quarter blended earnings decline for the S&P 500 is -3.2%. This marks the first time that the S&P 500 has recorded five consecutive quarters of year-over-year declines in earnings since the financial crisis. (Source: “Earnings Insight,” Factset, August 19, 2016.)
It’s not a total surprise then to see that the Technology SPDR (ETF) (NYSEARCA:XLK) is up more than 13% year-to-date and is at its highest levels in 16 years, whereas the long-suffering S&P 500 is up seven percent and the tech-heavy NASDAQ is up 7.5%.
Despite the Silicon Valley gold rush, there are still a large number of technology stocks that have been unfairly beaten down, and continue to have excellent short- and long-term upside potential.
If you’re looking for big gains and are looking to invest in technology stocks, below you’ll find a list of some of the cheapest tech stocks to watch in 2017. And by cheap, I mean excellent tech stocks that have been beaten down and have awesome upside potential.
Top Cheap Tech Stocks for 2017
If you’re looking for big tech stock gains, below is a list of the top cheap tech stocks to consider investing in for 2017.
VMware, Inc. (NYSE/VMW) is a cheap tech stock whose share price has been beaten down. But it’s also experiencing a renaissance. The company’s share price is down more than 30% since hitting highs of around $112 per share in April 2014. But it has advanced approximately 70% since bottoming—along with the broader market—in early 2016, and is trading near $76 per share.
VMware develops software that is used to create and manage virtual machines. Companies use its cloud infrastructure to more efficiently integrate and manage servers, storage, and networking functions, and lower the cost of operating their IT systems. VMware also provides an extensive range of consulting, technical support, training, and certification services that accounts for just over half of its sales.
In mid-July, the company’s share price soared on better-than-expected returns and the momentum has carried it into the otherwise sluggish month. VMware announced that second-quarter revenue increased 11% to $1.69 billion while profits were up 54% at $265.0 million, or $0.62 per share. (Source: “VMware Reports Second Quarter 2016 Results,” VMware, Inc., July 18, 2016.)
VMware’s CFO also said that the company is on track with its first-quarter-announced plan to repurchased $1.2 billion-worth of stock by the end of 2016.
Infinera Corp. (NASDAQ:INFN) is a cheap tech stock, but it’s not for the faint of heart. The company’s share price is getting hammered; down more than 60% since August 2015, near $9.10 per share. But new product launches could help Infinera’s share price recover in the next 12–18 months, or the second half of 2017.
Infinera Corp. provides optical transport networking equipment, software, and services worldwide. Specifically, its photonic integrated circuits (PICs) are intended to replace much larger components within optical networks. (Source: “About Infinera,” Infinera Corp., last accessed August 24, 2016.)
Its networking equipment is built around chips made from indium phosphide, a specialized semiconductor material that offers significantly faster performance than standard silicon.
Customers include cable system operators, Internet service providers (ISPs), and telcos such as Cox Communications, Inc., Interoute Communications Limited, Deutsche Telekom, Global Crossing, and Level 3 Communications, Inc.
The majority of the company’s revenues (around 80%) come from the North American long-haul and sub-sea networking markets. But Infinera is diversifying into more short-haul markets, including local and end-of-business, as well as cloud-based services.
Infinera Corp. has a market cap of $1.3 billion, forward price-earnings (P/E) ratio of 21.64, $257.7 million in cash, and $128.33 million in debt.
On July 27, Infinera announced that second-quarter revenue, for the period ended June 25, increased 5.7% year-over-year to $258.8 million. Gross margin was 47.8% versus 46.7% in the second quarter of 2015 and 47.5% in the previous quarter.
Second-quarter profits came in at $11.5 million—or $0.08 per diluted share—compared to a profit of $17.9 million—or $0.13 per diluted share—in the second quarter of 2015, and $12.0 million—or $0.08 per diluted share—in the first quarter of 2016.
The company’s share price fell after announcing its second-quarter results as analysts were forecasting revenue of $273 million and earnings of $0.22 per share. “While I am very pleased with our second quarter and year to date financial results, demand is softening in certain areas of our business and we face a difficult near-term revenue outlook,” said Tom Fallon, Infinera’s CEO.
It’s not the best news for investors expecting a short-term bump in the share price. But the outlook remains solid. On top of that, the sharp decline in the company’s share price has made the company’s share price cheap, at least according to many insiders. Infinera’s CEO recently purchased 200,000 shares while a CFO acquired 20,000 shares in early August.
Seagate Technology plc
Seagate Technology PLC (NASDAQ:STX) is not a cheap tech stock on the surface. After all, it’s trading at around $32.10 per share. But the company’s share price is down 50% from previous highs of around $60 per share in late 2014. On the bright side, the company’s share price has been on the rebound, up more than 70% since hitting lows of $18.50 in mid-May.
Seagate is the leading independent maker of hard disk drives (HDDs) used to store data in computers. Its drives are found in personal computers (PCs) and consumer electronics to high-end servers and mainframes. The majority of sales come from manufactures including: Hewlett-Packard Enterprise Co (NYSE:HPE), Dell Inc. (NASDAQ:DELL), EMC Corporation (NYSE:EMC), International Business Machines Corp. (IBM) (NYSE:IBM), and Sun Microsystems (now owned by Oracle Corporation (NYSE:ORCL).
The company has a market cap of $9.6 billion, a forward P/E ratio of 10.04, an operating cash flow of $1.68 billion, and a free cash flow of $1.25 billion. Seagate also provides an annual dividend of 7.85%, or $2.53 per share.
In early July, the company’s share price surged more than 20% when it announced preliminary fourth quarter and year end results for the period ended July 1, 2016. The company said it expected to report revenue of roughly $2.65 billion, higher than the previous forecast of $2.3 billion. The increase in revenue came from better than expected demand for its HDD products. (Source: “Seagate Technology Announces Preliminary Financial Information For Fiscal Fourth Quarter And Year-End 2016,” Seagate Technology PLC, July 11, 2016.)
For income investors, Seagate generated $269 million in operating cash flow and paid cash dividends of $188 million in the fourth quarter. In fiscal 2016, the company generated approximately $1.7 billion in operating cash flow and paid cash dividends of $727 million. (Source: “Seagate Technology Reports Fiscal Fourth Quarter and Fiscal Year 2016 Financial Results,” Seagate Technology PLC, August 2, 2016.)
The better-than-expected news comes on the heels of a corporate restructuring announcement on June 29, in which the company said it plans to cut around 1,600 jobs, or 3% of its workforce.
While corporate restructuring and slightly better-than-expected revenue growth is not exactly going to propel the company into the stratosphere, coupled with the firm’s encouraging outlook, steady buybacks, and five consecutive years of dividend growth, Seagate’s share price looks promising in 2017.
It looks even more promising when you consider that the company is deriving more of its revenue from “Cloud/New Storage Applications.” In 2010, 47% of its revenue came from the cloud; in 2015 it was 59%. (Source: “Fiscal Q3 2016 Supplemental Financial Information,” Seagate.com, April 29, 2016.)
Yes, Seagate’s share price will experience growing pains in 2017, but the future looks brighter than it did a year ago. And given the recent cost-cutting measures and strong cash flow, I expect the high dividend yield to continue, which should help investors weather any near-term volatility.