Over the past month, tech stocks have been rising and outperforming the S&P 500. Part of the reason is due to fears over the Delta variant of COVID-19. There has been a significant rise in the number of COVID cases in the U.S., with most of these cases confirmed as the Delta variant. Even as the economic rebound remains intact, the rising cases are cause for concern.
When cases rise, people are less likely to go out, which means investors go back to the technology stocks that performed so well in 2020. While I don’t see a repeat of the lockdowns, I can’t argue with the logic that many technology companies stand to benefit as cases increase. But many tech stocks have already had their prices run high.
That’s why investors should consider more under-the-radar technology companies whose offerings should not only benefit from rising cases but in the long run as well. These are companies with solid business models, robust growth potential, and whose stocks aren’t trading are high multiples. Silicon Motion Technology Corp. (SIMO), Teradata Corporation (TDC), and Yelp Inc. (YELP) are great examples, which is why I am highlighting them below.
Silicon Motion Technology Corp. (SIMO)
SIMO is active in the semiconductor industry and primarily focuses on the designing, developing, and marketing of controllers for managing NAND flash used in embedded storage applications, such as eMMC embedded memory. Its products are used in personal computing, smartphones and tablets, flash drives, and enterprise and data centers.
The company benefits from strong demand for its solid-state drive (SSD) controllers and eMMC and UFS controllers. This led to both an increase in revenue and sales year over year in the most recent quarter. In fact, the company is a leading merchant supplier of client SSD controllers to module makers. The company believes the market will be dominated by SSDs that use TLC flash.
That should bolster their use in PCs, displacing mechanical hard disk drives. SSD offers higher performance and competitive advantage over HDDs, which is why PCs are increasingly adopting them. When I look for a new computer, I know I prefer an SSD drive. So, this has been great news for SIMO. Plus, the company believes its SSD controller will be used for managing 3D flash going forward.
SIMO’s eMMC controllers are also showing signs of a rebound. The company has an overall grade of A, which translates into a Strong Buy rating in our POWR Ratings system. SIMO has a Growth Grade of A, which makes sense as its EBIDTA is up 26.7% over the past year and is expected to rise 30% over the next year.
The company also has a Value Grade of B due to a low valuation. For instance, its forward P/E is only 12.80. We also provide Momentum, Stability, Sentiment, and Quality grades for SIMO, which you can find here. SIMO is ranked #4 in the B-rated Semiconductor & Wireless Chip industry. For more top stocks in this industry, click here.
Teradata Corporation (TDC)
TDC is a leading provider of hybrid cloud analytics software. Its analytics platform helps customers integrate and simplify their analytics ecosystem, access and manage data, and use analytics to extract answers and derive business value from data. Its solutions include components such as data warehousing, big data, discovery tools, integration tools, and business intelligence tools.
Its target market includes companies that are large-scale users of data. These companies are seeing a massive increase in data due to the pandemic-driven move to digital, and an increase in the complexity, cost, and risk associated with managing large sets of data across diverse environments. The transition to a subscription-based business model has also been boosting recurring revenues.
Its second-quarter performance benefited from this momentum as both its top and bottom lines rose year over year. This business model is expected to be a long-term growth driver for the company. TDC is also benefiting from the expansion of cloud-based features in its Vantage platform. The solution is available at top public cloud vendors such Google Cloud, AWS, and Azure.
TDC continues to add features to the platform, both cloud and on-premise, to address customer needs for high performance and hybrid analytics. The company has an overall grade of A and a Strong Buy rating in our POWR Ratings system. TDC has a Growth Grade of A as analysts forecast sales to rise 20.6% this year and 22.1% per year over the next five years.
The company also has a Quality Grade of B due to a solid balance sheet. TDC reported cash of $684 million in the most recent reported quarter. That compares favorably to only $62 million in short-term debt. For the rest of TDC’s grades (Value, Momentum, Stability, and Sentiment), click here. TDC is ranked #1 in the A-rated Technology – Storage industry. For more top-ranked stocks in this industry, click here.
Yelp Inc. (YELP)
YELP provides a web-based platform and a mobile application to help bridge the gap between consumers and businesses. Its platform assists consumer decisions through product reviews, tips, photos, and videos, which enable them to make better buying decisions. It also caters to businesses through advertising space to reach out to potential customers.
The company generates revenue from the sale of advertising on its website and mobile app to businesses. YELP has benefited from an increase in food take-out and delivery orders due to the stay-at-home restrictions during the height of the pandemic. These orders appear to be here to stay as the company is seeing an acceleration in consumer traffic across its app-unique devices.
Plus, but YELP is also seeing a massive improvement in cumulative reviews. Management’s shift toward selling advertising plans without a fixed duration has resulted in an increase in paying advertiser accounts. The company has also benefited from its partnership with GrubHub. YELP generates revenue from GrubHub for transactions that start on the Yelp platform.
YELP has an overall grade of A, translating into a Strong Buy rating in our POWR Ratings system. The company has a Value Grade of B, which isn’t surprising as its price-to-sales ratio of 3. is well below the industry average. Its price-to-book ratio is also below the industry average. YELP also has a Quality Grade of A due to a rock-solid balance sheet.
The company has a current ratio of 4.5 and a debt-to-equity ratio of 0.2. Its gross margin of 93.5% is also quite high, especially compared to the industry average. To gain access to all of YELP’s grades, such as Growth, Momentum, Stability, and Sentiment, click here. YELP is ranked #2 in the Internet industry. For more top stocks in this industry, make sure to visit this link.
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This article was written by David Cohne, Chief Value Strategist for StockNews.com. David has helped investors find the most profitable stocks for over 20 years
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SIMO shares were unchanged in premarket trading Monday. Year-to-date, SIMO has gained 58.33%, versus a 19.64% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.3 Tech Stocks with More Room to Run This Month appeared first on StockNews.com