3 Best Cheap Tech Stocks to Consider in the Dip Before the Market Jumps Again

3 Best Cheap Tech Stocks to Consider in the Dip Before the Market Jumps Again
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Cheap Tech Stocks for 2019

It cannot be denied that technology is one of the fastest-growing sectors in the stock market. However, one consequence of tech stocks’ impressive growth is that valuations have gotten bloated. In this day and age, it’s not unusual to see hot tech stocks with triple-digit price-to-earnings (P/E) ratios.

But with the latest pullback in the U.S. stock market, tech stocks have taken a serious hit. As a result, value could start to appear. With that in mind, we are going to take a look at three of the best cheap tech stocks for value-conscious investors.

Why Are Tech Stocks Down?

Before we start, it’s important to see why tech stocks are having a rough time.

The most obvious answer is the market-wide sell-off in U.S. equities last month. Just take a look at the performance of major stock market indices and you’ll see what I mean. In October 2018, the Dow Jones Industrial Average dropped 5.8%, the S&P 500 declined 7.3%, and the Nasdaq Composite plunged a whopping 9.1%.

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Note that these indices measure the performance of some of the most established companies on the stock market. For many of the lesser-known names, the plunge in share prices in October was even worse.

As we’ve seen plenty of times in history, even the most solid companies experience a tumble in stock price when market participants are selling everything. Tech stocks are no exception to this rule.

Another reason behind the latest downturn in the tech sector was that tech stocks were climbing too fast in the first place. Over the past five years, the S&P North American Technology Sector Index surged 122.3%, substantially outperforming the S&P 500 index’s 54.2% gain during the period.

In a market sell-off, investors have a tendency to first sell the stocks that went up a lot before the crash. Because tech stocks were shooting through the roof not that long ago, they took some of the biggest losses as investor sentiment turned bearish.

Still, for value-conscious investors, the market pullback means there might be an opportunity to pick up some solid tech stocks on the cheap. With that in mind, let’s take a look at three tech stocks that offer good value for money.

Best Cheap Tech Stocks List

Company Name Stock Exchange Ticker Symbol
International Business Machines Corp. NYSE IBM
Intel Corporation NASDAQ INTC
Seagate Technology PLC NASDAQ STX

International Business Machines Corp.

Large-cap companies are not known for making big moves. But even for someone as big as “Big Blue,” a double-digit share price drop in just one month is not impossible. In October 2018, International Business Machines Corp. (NYSE:IBM) stock tumbled 23.7%.

Unsurprisingly, with such a sharp decline in stock price, the company’s value started to appear. Trading at $120.42 per share, IBM stock has a P/E ratio of just 12.2 times, substantially lower than the IT Services & Consulting industry’s average P/E of 20.5 times. (Source: “International Business Machines Corp (IBM.N),” Reuters, last accessed November 5, 2018.)

At the same time, the company’s price-to-sales and price-to-cash flow ratios are also much lower than the industry’s averages.

However, while IBM stock hasn’t been a hot commodity, the situation at the company may not be as bad as its share price performance suggests. In the third quarter of 2018, IBM’s revenue totaled $18.8 billion, which was essentially flat year-over-year on a constant currency basis.

But the company does have some growth drivers, which it calls its strategic imperatives. These include mobile, social, analytics and cloud, and they have been firing on all cylinders. (Source: “IBM Reports 2018 Third Quarter Results,” International Business Machines Corp., October 16, 2018.)

In the past 12 months, IBM’s strategic imperatives brought in $39.5 billion in revenue, marking an 11% increase year-over-year after adjusting for currency.

With growth drivers like hybrid cloud, blockchain, analytics, and artificial intelligence, this cheap tech stock could make a comeback.

Chart courtesy of StockCharts.com

Intel Corporation

Like many tech stocks, Intel Corporation (NASDAQ:INTC) went downhill as the market entered a sell-off in October 2018. But thanks to a strong earnings report, the stock is now on its way back up.

Intel is one of the biggest chip makers in the world. Its x86 series of microprocessors have been dominating the business since the early days of personal computers.

Bears argue that because the PC industry isn’t growing as fast as before, Intel’s business would slow down as well. But if you take a look at the latest earnings report, you’d see that that’s not really the case.

The legacy tech company reported earnings on October 25. The report showed that Intel generated $19.2 billion of revenue in the third quarter of 2018, up 19% year-over-year and marking a new quarterly record. (Source: “Intel Reports Third Quarter Financial Results,” Intel Corporation, October 25, 2018.)

For those concerned about how the future of the PC industry could affect INTC stock, here’s a fact: Intel has multiple business units, and Client Computing Group—its PC-centric segment—only represents 53% of the company’s total revenue. The rest of the money is earned by Intel’s data-centric businesses.

Mind you, even the PC-centric segment delivered a 16% revenue increase for the third quarter.

And as you would expect, data is the real catalyst in tech these days. For the quarter, Intel’s Data Center Group revenue surged 26% from a year ago to $6.1 billion. At the same time, the company’s Non-Volatile Memory Solutions Group revenue grew 21% year-over-year to $1.1 billion.

Top line growth has translated to the bottom line. In the third quarter of 2018, Intel’s adjusted earnings came in at $1.40 per share, representing an astonishing 39% increase from the prior year period.

And the best could be yet to come. For full-year 2018, management expects Intel to earn an adjusted net income of $4.53 per share, which would represent a significant improvement from the $3.46 per share earned in 2017. Meanwhile, INTC stock has a P/E ratio of just 15.2 times, not a high number by any means. (Source: Ibid.)

Chart courtesy of StockCharts.com

Seagate Technology PLC

Seagate Technology PLC (NASDAQ:STX) is another stock that is recovering from the market sell-off earlier last month. STX stock dipped to as low as $37.83 on Monday, October 29. But since then, it has been making a nice V-shaped recovery and now trades at around $44.95 apiece.

The neat thing is, despite delivering a double-digit percentage gain in just a few trading sessions, Seagate Technology PLC is not expensive at all. And that’s because the stock is still down quite a bit from earlier this year. In the past six months, STX stock tumbled more than 20%.

When a stock takes such a big hit, it could mean that the company’s outlook has taken a turn for the worse. The thing is, though, while sentiment wasn’t that bullish toward Seagate Technology, the company still managed to grow its business at quite an impressive pace.

For those not in the know, Seagate is a data storage solutions company. The company offers a wide range of products, including hard disk drives (HDDs), solid-state drives (SSDs), and solid state hybrid drives (SSHDs). Seagate sells its products directly to original equipment manufacturers (OEMs) as well as through distributors and retailers.

The company operates on a fiscal year that ends on June 30, so the results of its full-year fiscal 2018 are already available. For the year, Seagate’s revenue grew four percent to $11.2 billion. Adjusted earnings came in at $5.51 per share, marking a 33.7% increase from the prior year. (Source: “Seagate Technology Reports Fiscal Fourth Quarter And Fiscal Year 2018 Financial Results,” Seagate Technology PLC, July 30, 2018.)

Last week, Seagate reported earnings for the first quarter of its fiscal 2019. In the three-month period ended September 30, the company’s revenue grew another 14% year-over-year to $3.0 billion.

What’s even more impressive, though, was the bottom line. Excluding one-time items, Seagate earned an adjusted net income of $1.70 per share, up a whopping 77% from the year-ago quarter. (Source: “Seagate Technology Reports Fiscal First Quarter 2019 Financial Results,” Seagate Technology PLC, November 2, 2018.)

These growth rates are nothing to sneeze at, but market participants haven’t really priced STX like a typical growth stock. Seagate Technology currently has a P/E multiple of 13.1 times, lower than its industry’s average P/E of 16.84 times. (Source: “Seagate Technology PLC (STX.OQ),” Reuters, last accessed November 5, 2018.)

Finally, while investors are searching for the next tech stock forecast, note that share price appreciation is not the only way to profit from the sector. Seagate, for instance, returns cash to shareholders on a regular basis. With a quarterly dividend rate of $0.63 per share, STX offers a generous annual yield of 5.6%.

Chart courtesy of StockCharts.com

Analyst Take

At the end of the day, keep in mind that the best tech stocks right now are not necessarily the cheapest ones. The stock market could be efficient, and very often, you get what you pay for. The three companies I discussed in this article offer good value for money for what they are, but they are not exactly the fastest-growing ones. For those who want to own the fastest-growing names in the tech sector, prepare to pay quite a bit more.