Undervalued Tech Stocks in 2019
After a brutal end to 2018, tech stocks have been on fire in January, with many investors wondering, after the December meltdown, what are the most undervalued tech stocks in 2019?
For the first nine months of 2018, technology stocks performed well. By the end of September, the Nasdaq had advanced 16% and the Technology Select Sector SPDR Fund (NYSEARCA:XLK) was up 18.5%.
For comparison’s sake, over the same time frame, the S&P 500 increased 8.5%. That’s respectable, but not as frothy as the tech sector.
It was all downhill after that though. The broader markets sold off in October, and then things got worse in December. After a great start to 2018, the Nasdaq finished the year 4.3% in the red. The Technology Select Sector SPDR Fund ended 2018 two percent in the red. The S&P 500, meanwhile, finished the year down 6.6%.
2018 will be remembered as the worst year for stocks in a decade. It was also the worst December that Wall Street had seen since the Great Depression. Not the best sentiment for starting out 2019.
But depressed technology stocks have surprised investors in the first month of 2019. Despite concerns about a trade war with China, rising interest rates, and gridlock in Washington, investor optimism remains solid. On top of that, U.S. consumer sentiment remains strong despite global economic headwinds.
All of this bodes well for technology stocks. And while many technology stocks have rebounded in the early weeks of 2019, they are still down significantly over their pre-October sell-off levels. Meaning, there are many excellent tech stocks trading at, some might say, discount levels.
3 Undervalued Tech Stocks
Here are three undervalued tech stocks that investors should keep their eyes on in 2019.
|Cognizant Technology Solutions Corp||NASDAQ:CTSH|
Cognizant Technology Solutions Stock
Teaneck, New Jersey-based Cognizant Technology Solutions Corp (NASDAQ:CTSH) is a professional services company that helps businesses implement faster, more efficient operating and technology models.
Cognizant has helped many of the biggest names in every industry and geographic region envision, build, and run more innovative businesses.
Clients include all of the top 30 global pharmaceutical companies; seven of the top 10 communications service providers and equipment vendors; four of the top five online companies; 17 of the top 20 North American financial institutions; four of the top 10 global media companies; and nine of the top 30 global retailers. (Source: “Corporate Overview,” Cognizant Technology Solutions Corp., last accessed January 29, 2019.)
In fact, more than 90% of Cognizant’s annual revenue comes from returning clients.
- Ranked No. 87 in the Forbes Top 100 Digital Companies (September 2018)
- Ranked No. 74 in the Forbes Best Employers for Women (July 2018)
- Ranked No. 573 in the Forbes Global 2000 (June 2018)
- Ranked No. 195 in the Fortune 500 (May 2018)
- Named among World’s Most Admired Companies by Fortune (February 2018)
- Ranked No. 16 in the Barron’s 100 Most Sustainable Companies (February 2018)
- Named a Top 100 Global Tech Leader by Reuters (January 2018)
- Named among America’s Best Management Consulting Firms by Forbes (May 2017)
Chart courtesy of StockCharts.com
Cognizant’s share price was not exactly consistent in 2018.
In late September, the company’s 50-day moving average crossed below its 200-day moving average, a bearish sentiment referred to as a death cross. It usually points to a sell-off, and that’s exactly what happened.
Since the beginning of 2019 though, Cognizant’s share price has rebounded. Over the first four weeks of January, the price increased by 11.6%. It’s still down roughly 17% from previous highs in 2018 though.
Cognizant Technology Solutions Financials
On October 30, 2018, Cognizant announced the financial results for its third quarter. Third-quarter revenue increased 8.3% year-over-year from $3.8 billion to $4.1 billion. (Source: “Cognizant Reports Third Quarter 2018 Results,” Cognizant Technology Solutions Corp, October 30, 2018.)
Net income was $477.0 million ($0.82 per diluted share), compared to $495.0 million ($0.84 per diluted share) in the third quarter of 2017. Non-generally accepted accounting principles (GAAP) diluted earnings per share (EPS) was $1.19, compared to $0.98 in the third quarter of 2017.
Year-to-date revenue was $12.0 billion, a 9.2% increase over the $11.0 billion recorded in the same prior-year period. Net income was $1.5 billion ($2.49 per share), compared to $1.5 billion ($2.56 per share) in the first three quarters of 2017.
Non-GAAP diluted earnings per share (EPS) was $3.44, compared to $2.75 in the first nine months of 2017.
“Cognizant delivered strong third-quarter results in three of our four business segments,” said CEO Francisco D’Souza.
CFO Karen McLoughlin added, “We delivered solid performance in the third quarter as we continued to focus on sustainable revenue growth while increasing margins. The strength of our balance sheet allows the company to maintain financial flexibility while driving a substantial return of capital to shareholders.” (Source: Ibid.)
To that end, the company declared a quarterly cash dividend of $0.20 per share. Cognizant ended the third quarter with cash and cash equivalents of $1.3 billion and long-term debt of $624.0 million.
Should You Consider Cognizant Technology Solutions Stock in 2019?
Cognizant’s revenue has been on the rise. In 2017, revenue grew 9.8% to $14.8 billion. For 2018, it expects to report revenue in the range of $16.1–$16.3 billion, which would be a year-over-year increase of about 8.7%.
The solid growth is attributed to its integration of digital technologies that are helping reshape the company’s business.
Cognizant is also in the midst of a plan to return $3.4 billion to shareholders through a combination of cash dividends and share repurchases.
Chegg Inc Stock
Chegg Inc (NYSE:CHGG) is a digital education company that helps U.S. students in high school and college learn more, in less time, and at a lower cost. The company offers online textbook rentals, online tutoring, help with homework, test prepping, scholarships, and internship matching.
The top tutoring subjects include algebra, calculus, economics, finance, chemistry, English, computer science, statistics, mechanical engineering, geometry, math, physics, and writing.
Chart courtesy of StockCharts.com
Like many tech stocks, Chegg Inc performed well over the first nine months of 2018, increasing 99.8%. Then October hit and the company’s share price tumbled—but it rebounded quickly. In January 2019, it has gone on to hit new highs, climbing 24% over the first four weeks of the year.
Chegg Inc Financials
On October 29, 2018, Chegg announced the financial results for its third quarter.
Third-quarter revenue was up 19% year-over-year at $74.2 million. The number of “Chegg Services” subscribers grew 45% year-over-year to 1.7 million while the number of “Chegg Study” content views was up 51% to 110 million. (Source: “Chegg Reports Q3 2018 Financial Results,” Chegg Inc, October 29, 2018.)
The Santa Clara, California-based company reported a loss for the third quarter of $1.4 million ($0.12 per share). This compares to a 2017 third-quarter loss of $11.5 million ($0.11 per share). Non-GAAP net income was $8.7 million versus $1.5 million in the same prior-year period.
Chegg ended the third quarter with approximately $475.0 million of cash and investments. Total liabilities stood at $363.7 million.
For the 2018 fourth quarter, Chegg is forecasting revenue in the range of $90.0 million and $92.5 million. At the midpoint, that represents a 24% increase over the $73.5 million recorded in the fourth quarter of 2017.
Chegg increased its full-year revenue guidance to a range of $315.0–$318.0 million. At the midpoint, that represents a 24% increase over the $255.1 million recorded in 2017.
For 2019, Chegg is currently predicting annual revenue of approximately $388.0 million.
CFO Andy Brown commented,
…we had another strong quarter in Q3. We delivered above the high end of our expectations, giving us confidence to increase full year guidance and provide a strong initial outlook for 2019, all while continuing to invest in both the content that powers our existing services and building out our new services to improve student outcomes.
Should You Consider Chegg Inc in 2019?
Chegg stock shrugged off both the October and December meltdowns, and it continues to have excellent momentum with tremendous upside potential.
The company’s share price was up 119% in 2017 and up roughly 74% in 2018. Solid growth in 2018 came on the heels of strong revenue growth in each of the first three quarters of 2018.
Looking forward, Chegg increased its full-year 2018 guidance and provided a strong outlook for 2019.
Again, Chegg is not hurting like other tech stocks, but it is overlooked and has great potential for huge gains in 2019.
FireEye Inc Stock
If you think the world of cyber-sabotage and computer hacking are a thing of the past, think again. According to the most recent data from the White House, malicious cyber-activity cost the U.S. economy between $57.0 billion and $109.0 billion in 2016. (Source: “The Cost of Malicious Cyber Activity to the U.S. Economy,” The White House, last accessed January 29, 2019.)
While the biggest instigators are Russia, China, Iran, and North Korea, it is not entirely uncommon for cyber-attacks to come from within the U.S. (company insiders, corporate competitors, opportunists, etc.).
Perhaps not surprisingly, the need for security and privacy concerns helped boost worldwide spending on information security products and services to over $114.0 billion in 2018—a 12.4% increase from 2017. In 2019, it is estimated that information-security spending will grow 8.7% to $124.0 billion. (Source: “Global Information Security Spending To Exceed $124B In 2019, Privacy Concerns Driving Demand,” Forbes, August 19, 2018.)
FireEye is at the center of the cybersecurity storm. FireEye provides cybersecurity solutions to businesses to prevent, respond to, and repair cyber-attacks. FireEye has more than 7,300 customers in 67 countries, including more than 50% of the Forbes Global 2000.
Founded in 2004, the company was formerly known as NetForts, Inc. It changed its name to FireEye Inc in September 2005 and had its initial public offering (IPO) in September 2013.
Chart courtesy of StockCharts.com
FireEye stock had an interesting 2018, performing well in the first four months of the year. In August, its 50-day moving average crossed below its 200-day moving average, signaling bearish sentiment.
Instead of a sell-off though, FireEye’s share price tricked technical traders and trended higher until early November, when it hit a 52-week high of $20.61. This was a year-to-date gain of 44%.
Unfortunately, FireEye’s momentum was upended by the December melt-down. It ended 2018 up 14.4%, which was solid, but significantly lower than its November and December levels.
That downward pressure disappeared in 2019. The company’s share price is up 11.2% year-to-date and needs to climb roughly 16% to reach its pre-December sell-off levels.
FireEye Inc Financials
On October 30, 2018, FireEye announced the financial results for its third quarter.
Revenue increased seven percent year-over-year to $212.0 million, which was above the company’s previous guidance range of $206.0–$210.0 million. (Source: “FireEye Reports Financial Results for Third Quarter 2018,” FireEye, Inc., October 30, 2018.)
Third-quarter billings of $219.0 million were up eight percent from the third quarter of 2017 and were at the high end of the previous guidance range of $210.0–$220.0 million.
FireEye reported a third-quarter loss of $0.26 per share, compared to $0.39 per share in the third quarter of 2017.
Non-GAPP net income per share was $0.06, compared to a non-GAAP net loss of $0.02 per share in the third quarter of 2017. This was above the previous guidance range of $0.01–$0.03.
Cash flow generated by operations was $21.9 million, compared to $12.5 million in the third quarter of 2017.
“Continued strong billings performance translated to an acceleration in revenue growth in the quarter,” said Frank Verdecanna, FireEye CFO.
Verdecanna added, “Our confidence in our ability to exceed our original 2018 financial objectives is reflected in our updated guidance for billings, revenue, operating margin, and operating cash flow.” (Source: Ibid.)
Fourth-Quarter and Updated 2018 Outlook
For fourth-quarter 2018, FireEye expects:
- Total revenue in the range of $214.0–$218.0 million
- Billings in the range of $245.0–$255.0 million
- Non-GAAP net income per share between $0.04 and $0.06.
- Cash flow generated by operations between $30.0 million and $35.0 million.
For full-year 2018, FireEye expects:
- Revenue in the range of $827.0–$831.0 million.
- Billings in the range of $835.0–$845.0 million.
- Non-GAAP net income per share between $0.06 and $0.08.
- Non-GAAP cash flow generated by operations between $60.0 million and $65.0 million.
Should You Consider FireEye Inc in 2019?
FireEye’s revenue has been climbing and its losses have been narrowing. The company is on track to meet its objective of positive cash flow in 2018 and is expected to be profitable in 2021 or 2022.
FireEye stock has been trending higher from its early-2017 lows, and it could be rewarded by investors as the company continues to post stronger quarterly results and zeros in on sustained profitability.
Investors won’t have to wait until 2021 or 2022 to see FireEye shares make strong gains.
Some analysts have been saying that 2019 will be a tough year for tech stocks while others say it will be a great year. It doesn’t matter either way really; there are always going to be solid tech stocks that buck the trend.
Cognizant Technology Solutions, Chegg, and FireEye are three great tech stocks of varying sizes: Cognizant has a market cap of $40.4 billion; Chegg has a market cap of almost $4.0 billion, and FireEye has a market cap of $3.4 billion.
All three companies have great stories, strong fundamentals, and bright outlooks for 2019 and beyond.