Severe stock price dips create buying opportunities
- Looking for tech stocks to buy? These seven all offer enticing quality.
- Snowflake (SNOW): Customers still need a centralized data warehouse stored in the cloud.
- Teladoc Health (TDOC): Weak revenue from key products is temporary.
- Cloudflare (NET): Cloudflare’s CDN is growing faster than AWS or Azure did in its infancy.
- Coinbase Global (COIN): Coinbase is the only strong cryptocurrency platform on the market.
- SAP (SAP): Russia added to costs, but customers need digital transformation.
- Cisco Systems (CSCO): Cybersecurity offering is a tailwind for Cisco.
- Garmin (GRMN): Outdoor fitness trackers will thrive.
The stock market’s steep drop in 2022 has incited panic. Panic has led to more selling, sending stock prices lower. Technology stocks fared relatively worse, because they rose proportionately more in the last two years. Today, investors are scrutinizing valuations. Value scores are not the only numbers to consider when looking for tech stocks to buy.
In this table with data supplied by Stock Rover, the tech stocks to buy have reasonably good value scores. In addition, most companies have a strong quality score. Their business has a high return on investment. As they generate operating income, investor returns rise as revenue expands.
After screening for stocks with strong growth and value, investors should choose companies whose business would thrive no matter the market conditions. Some of the selected stocks dipped more than they should have. That created a better entry price. As the economy continues growing, those companies will realize their potential by growing their addressable market share.
Companies are not guaranteeing they will sustain strong prospects. Central banks began raising rates at a measured pace of 50 basis points each time. This will eventually slow the economy and potentially cause a recession. Fortunately, the selected companies may dip again. This creates yet another entry point.
Snowflake (NYSE:SNOW) is a single platform for data warehousing. It serves customers seeking cloud solutions by running an SQL query engine on an architecture natively designed on the cloud. Markets sold SNOW stock throughout the year because much of its revenue comes from start-ups.
Start-ups depend on venture capitalists for funding. As funding dries up, Snowflake’s revenue potential risks slowing. Despite the weak share price, Snowflake continues to seek opportunities. For example, it helped customers move from on-premise traditional data warehouse workloads into Snowflake.
On the cloud, customers may share the online date. Snowflake then builds analytical applications that customers require. In addition, OEMs consume that data. As a result, users have applications that have access to real, secured data.
Snowflake has plenty of revenue growth potential ahead. Its Fortune 500 customers pay the company an average of $1 million to $3.5 million. As those customers roll out Snowflake-driven solutions, the company will report revenue in future quarters.
Teladoc Health (TDOC)
Teladoc Health (NYSE:TDOC) lost nearly half its value after posting a net loss per share of $41.58. In the first quarter, revenue grew by 25% year-over-year to $565.4 million.
Teladoc took a non-cash goodwill impairment charge of $6.6 billion. Looking ahead, markets have low confidence in the electronic health provider’s sales cycle. Employers and health plans are taking longer to decide how Teladoc fits in their service offerings.
On its conference call, executives did not elaborate its margin levels beyond 2022. It is reevaluating its product pricing and product demand. For example, BetterHelp could face elevated customer acquisition costs as demand weakens and user interest weakens. Instead of spending less on marketing, Teladoc might need to launch aggressive advertising campaigns.
In the mental health segment, Teladoc experienced weak results due to the suspension of regulations for the prescription of controlled substances during the national health emergency. This is a temporary headwind. Once governments lift the prohibition, its consumer mental health service, BetterHelp, will improve.
Cloudflare (NYSE:NET) is a content delivery network. Companies reliant on secure online services need Cloudflare. The stock fell after posting weak quarterly results.
In the first quarter, Cloudflare reported revenue growing by 54% YoY to $212.2 million. It added around 14,000 paying customers and now has 154,109 in total. In Q1, it lost $41.4 million, comparable to the $40.0 million loss a year earlier. For Q2, Cloudflare issued a revenue range below consensus.
Investors comfortable with holding a fast-growing firm with minimal profits should consider NET stock. The company’s business is expanding faster than Amazon’s (NASDAQ:AMZN) AWS or Microsoft’s (NASDAQ:MSFT) Azure. Shareholders need to consider the unfavorable macroeconomic headwinds ahead. The Federal Reserve is determined to slow hyperinflationary rates. Its rate increases and quantitative tightening will shrink the money supply.
Technology firms thrive when lenders are willing to lend. When stock markets trade at depressed valuations, Cloudflare will raise less money from shares sold. However, when the interest rate cycle ends, markets will overvalue technology stocks again. Cloudflare is on the cusp of profitability. Its innovations in CDN will result in higher profit margins.
Coinbase Global (COIN)
The skeptic will consider Coinbase Global (NASDAQ:COIN) as a glorified video tutorial site for beginner cryptocurrency investors. COIN stock dipped after the company posted a weak outlook.
Coinbase expects its number of monthly transacting users (“MTUs”) and total trading volume to fall sequentially from Q1 levels. It blames weak crypto prices for the drop. In addition, it expects adjusted EBITDA (earnings before interest, taxation, appreciation and depreciation) losses of around $500 million on a full-year 2022 basis. In Q1, MTUs fell to 9.2 million compared to 11.4 million in the prior sequential quarter.
On its conference call, Chief Financial Officer Alesia Haas mentioned the launch of NFT Beta, which is open to a general release. Due to weak customer response to the launch, Coinbase is better served to focus its efforts on the crypto platform. Furthermore, OpenSea is the largest NFT marketplace already. Even at a 10% budget allocation, Coinbase will spend too much money and effort building a marketplace that will lose more money. NFT demand is also weakening.
Coinbase will allocate around 70% of its budget to its core activities of trading, custody and international expansion. It will allocate 20% of its budget for strategic products. This includes the crypto wallet. In Q1, Coinbase made Cardano (ADA-USD) staking available. It will realize revenue from this initiative in future quarters.
Despite paying a dividend of $2.66 a share (a 2.8% yield), SAP (NYSE:SAP) shares are in a slump. The company discontinued its cloud data center operations in Russia, adding to its amortization costs. That contributed to 70 million EUR ($73.8 million) in expenses.
SAP expects some disruption in business in Europe. Despite the challenges, companies need SAP to help them transform and run in the digital age. In 2023, higher cost run rates will slow. And starting in the second half of the year, SAP has increased efficiency from its cloud infrastructure. This will increase its cloud margin rate as the company enters 2023.
In the first quarter, SAP posted cloud revenue growing by 31%. Its cloud backlog approached 10 billion EUR ($10.5 billion). The SAP S/4HANA platform is a tailwind. Customers are confident in placing their trust in the SAP S/4HANA product. They need this tool to support their business transformation. As SAP works down its backlog, it will post revenue that exceeds investor expectations.
Investors should take advantage of SAP stock dipping to build a bigger position.
Cisco Systems (CSCO)
Cisco Systems (NASDAQ:CSCO) faced supply chain challenges in the last quarter. Unable to procure parts, the company could not meet investor expectations in its last quarter.
Cisco posted revenue of $12.7 billion, up by 6% YoY. It earned 71 cents a share in the quarter, up by 18% YoY. Those strong results suggest that Cisco’s ship is turning around faster. The market disagrees. CSCO stock dipped a few times throughout the last year.
Investors seeking exposure to cybersecurity should consider CSCO shares at these discounted levels. At Cisco, Talos is a threat research organization. Talos works with over 40 different government agencies globally. The company has valuable intelligence in the cybersecurity space. The company will eventually find ways to monetize this knowledge. Doing so, it will make the world a safer place.
Cisco has multiple solutions that are catalysts to growth. For example, it has an Extended Detection and Response (XDR) offering, a Secure Access Service Edge (SASE) offering, and Zero Trust solutions.
Garmin (NYSE:GRMN), known best for its GPS devices in the last few decades, is a deep value firm. The company maintained its guidance for the year. It expects revenue of around $5.5 billion. Pro forma EPS is $5.90.
Garmin is well worth holding for the long term. The company benefited from a lift from customers enjoying outdoor activities. It has a strong product lineup for the year. New products will offset the pace of decline from the last quarter.
Garmin has a healthy balance sheet. With $3 billion in net cash, it could buy back shares to increase shareholder value. It had enough cash to increase its inventory and meet its working capital needs.
Garmin’s fitness segment is weaker than expected. It cannot discount its product to drive sales. Instead, it needs to rely on the stronger overall demand for its wearable product lineup for profit growth. After two years of staying at home, people will spend more time and money on outdoor activities.
This article originally appeared at InvestorPlace.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.