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- Tech stocks have good valuations, since they sold down more than the market has. That means there are deals to be had.
- Applied Materials (AMAT): This semiconductor stock has good valuations but is not cheap.
- PayPal Holdings (PYPL): This fintech is down about 75%. Buy on further weakness.
- Micron Technology (MU): This big tech stock looks oversold and could be bought here.
- Synopsys (SNPS): Oversold but still has a high multiple.
- ANSYS (ANSS): Growth company but high valuation, Buy or wait for pullback.
- NXP Semiconductors (NXPI): Good P/E, good PEG ratio and looks cheap here.
- Datadog (DDOG): Down about 55% but still has good prospects.
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The market decline has hurt almost every stock asset class, but the tech sector, as represented by the Invesco QQQ Trust ETF (NASDAQ:QQQ), has gone down more than the broader market. It is down about 27% year to date. The SPDR Dow-Jones Industrial Average ETF (NYSE:DIA) is down about 13%; the SPDR S&P 500 Index ETF (NYSE:SPY), down about 15%; and the SPDR S&P 400 Index ETF (NYSE:MDY) down more than 14%. So when looking for bargains after the tumble, don’t ignore oversold tech stocks.
Part of the reason why oversold tech stocks might rebound is thanks to the expected growth in the sector. Some of these tech stocks went down more than other sectors because tech outperformed on the way up. Some of them had profits that were outsized, and investors could sell them and book the profit — perhaps even use those profits to offset losses in other stocks.
Oversold tech stocks could have valuations that are attractive enough to buy now or could be stocks to note now and to consider buying on future weakness.
| AMAT | Applied Materials | $110.74 |
| PYPL | PayPal Holdings | $81.28 |
| MU | Micron Technology | $69.40 |
| SNPS | Synopsys | $300.52 |
| ANSS | ANSYS | $248 |
| NXPI | NXP Semiconductors | $175.79 |
| DDOG | Datadog | $96.53 |
Applied Materials (AMAT)
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A major company in the technology space that is down over 30% from its 52-week high and is expected to grow earnings is Applied Materials (NASDAQ:AMAT). AMAT serves the semiconductor industry by providing manufacturing equipment and services to companies that manufacture semiconductor, integrated circuits and other products. AMAT is global, servicing and selling to consumers and the semiconductor industry in the U.S., China, and throughout Asia and Europe.
Applied Materials’ earnings are expected to increase in the next couple years. Yahoo! Finance shows the average EPS expected for 2022 is $8.10, 18% higher than 2021’s mark of $6.84. The target for 023 is even higher, at $9.30.
Simplywallst.com calculates that AMAT’s market price is 44.2% under its fair market value for the company. It also opines that among the headwinds for AMAT is that the company has a large exposure to China, and China is experiencing a slowdown.
AMAT might be an oversold tech stock, but the stock on a valuation basis is not cheap and investors could wait for a further market pullback or dollar cost average into the stock.
PayPal Holdings (PYPL)
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Another oversold tech stock, down over 70% from its 52-week high, is PayPal Holdings (NASDAQ:PYPL). PYPL does have some attractive fundamentals: the company services traders and consumers with payment solutions, mostly on the internet. PYPL has about 426 million active accounts in late 2021, according to Morningstar.com.
Earnings might be hard to maintain or improve, and that surely helped lead to it becoming an oversold tech stock. PYPL will report earnings in July. TipRanks.com reports its consensus earnings forecast for the second quarter 2022 is 89 cents per share versus last year’s earnings of $1.15 per share for that quarter. TipRanks has a strong buy consensus recommendation.
Zacks Investment Research has a different view, recommending a “strong sell” on PYPL, and estimating that PYPL will earn $3.96 a share in the current year, versus its prior year earnings of $4.60 a share.
So, there is risk in PYPL. But if an investor understands this, and is patient, PYPL could be an oversold tech stock that will pay off.
Micron Technology (MU)
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The memory-chip industry is very volatile, and Micron Technology (NASDAQ:MU) has dropped close to 30% from its 52-week high, which makes it an oversold tech stock. The company makes DRAM chips, which function as the main memory in servers, PCs, and other electronic products. MU also make NAND chips, which serve data storage needs.
Investors Business Daily reported on May 5 that TrendForce, a research firm, found that most DRAM factories experienced lower shipments in the 2021 fourth quarter. The drop was caused by lower demand because of pandemic-related supply issues. On May 10, TrendForce reported that the supply of NAND would be greater than demand in the second half of 2022.
This seems to have spooked investors away from the chip sector. And the general market drop, caused by real problems, exacerbated the semiconductor stocks’ decline.
But MU says that its next-generation chips make it the leader for the next several quarters. And in September 2021 Micron Chief Executive Sanjay Mehrotra said that “we established technology leadership concurrently in both DRAM and Nand.” That makes MU an excellent oversold tech stock to buy here.
Synopsys (SNPS)
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Synopsys (NASDAQ:SNPS) has lost about 25% from its 52-week high so far. This company develops electronic products and software applications and produces electronic design automation around the globe. Synopsis also produces application security testing tools and offers services for these tools.
SNPS earnings are impressive. Last year the company made $6.83 per share; this year, MarketWatch.com reports that analysts estimate that SNPS will earn $7.91 per share, and in 2023 they expect $9.20. The average target price from analysts is $388.33.
Zacks Research calculates SNPS earnings per share growth rate at 16.21% for the next thee to five years, with a forward P/E at 34.51. Its PEG Ratio is 2.13, which is not cheap. But this oversold tech stock can be bought here for appreciation, knowing that there is more risk in higher multiple stocks.
ANSYS (ANSS)
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ANSYS (NASDAQ:ANSS) currently sits about 40% lower than its 52-week high. Ansys is a company that produces software that helps its global clients create engineering simulations. The company has developed its Pervasive Engineering Simulation to solve design problems for its customers.
The company is growing. On May 4, ANSS announced that it acquired Motor Design Limited, and that this acquisition will increase the number of its available design offerings.
Also, it will enable the customers of Ansys to design and produce more efficient electric machines.
The valuation for ANSS is high, and in this market environment investors might wait for lower prices. Zacks Investment Research reports consensus current year estimated earnings per share of $7.85; last year the company made $7.37 a share. With a forward P/E ratio of 30.88, and a PEG ratio of 2.68, the market price of ANSS is too high. However, on a price pullback ANSS could be a stock to buy.
NXP Semiconductors (NXPI)
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Morningstar.com reports that the forward P/E multiple on NXP Semiconductors (NASDAQ:NXPI) is 12.82, and that the PEG ratio on these earnings is 1.22, which is a reasonable valuation and attractive enough to make it a stock to buy. If the market declines more, the stock could drop also.
A dollar-cost-average buying strategy could be used with NXPI stock, since it has already dropped about 27% from its 52-week high, making it an oversold tech stock.
On May 3, Brian Colello of Morningstar wrote that NXPI had good first-quarter 2022 results and a good second-quarter forecast, and that chip demand continues to be strong, exceeding demand. Morningstar has a $240 fair value estimate on the stock and considers the shares “fundamentally undervalued.”
The report states that NXP Semiconductors should gain more chip usage in luxury cars and electric vehicles in the future.
Datadog (DDOG)
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The last of our oversold tech stocks — a company that lost about 52% of its market value in the last 52 weeks — is Datadog (NASDAQ:DDOG). In a write-up by Malik Ahmed Kahn, analyst at Morningstar, on May 5, he reiterated his $192 fair value estimate of the company. Kahn’s opinion was that the stock was down with general market selling and that DDOG was at a good price for exposure to SaaS companies.
Morningstar.com shows a forward price/earnings ratio of 164 times earnings, and a PEG ratio of 2.87. These valuations are high, especially in the market environment we find ourselves in.
But this oversold tech stock is in a growth industry with good services, such as security monitoring of customers’ technology stack.
TipRanks.com expects DDOG to report its second-quarter 2022 consensus earnings in August. The consensus is for 15 cents against last year’s same period earnings of 9 cents. Those are impressive earnings, and DDOG should be watched for a buy point.
On the date of publication, Max Isaacman 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.
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