Despite the macroeconomic challenges, the tech hardware industry is well poised for growth thanks to widespread tech adoption, increased investments in digitization, and the embracement of new technologies. These factors are fueling the demand for advanced hardware solutions.
With the holiday season soon to get underway, investors could look to buy fundamentally strong tech stocks Apple Inc. (AAPL), Canon Inc. (CAJPY), and Dell Technologies Inc. (DELL) for profits.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the tech hardware industry is well-positioned to grow.
The tech hardware sector is evolving as businesses adopt technology for customer engagement, innovation, and efficiency. Advanced hardware complements software, ensuring smooth operations. Rapid digital transformation initiatives and emerging tech adoption are driving the industry growth. The transition to a hybrid work culture is necessitating the need for advanced hardware for smooth operations.
Investing in advanced hardware and equipment by enterprises leads to enhanced productivity and efficiency. Gartner predicts global IT spending will reach $4.69 trillion in 2023, reflecting a 3.5% year-over-year increase. Spending on devices is anticipated to decrease by 10% over the prior-year quarter in 2023, but it is projected to grow by 4.8% year-over-year to $722.47 billion next year.
The Internet of Things (IoT) technology is actively contributing to the digital transformation of businesses, leading to a significant increase in the demand for interconnected hardware, such as sensors, processors, and wireless solutions. According to Mordor Intelligence, the IoT devices market is expected to grow at a CAGR of 23.3% to reach $336.64 billion by 2028.
Notably, the industry's growth is primarily fueled by the increasing adoption of cutting-edge technologies, particularly Artificial Intelligence (AI) and machine learning. These innovations are driving a substantial demand for highly specialized tech components. The IT hardware market is projected to grow at a CAGR of 7.9% to reach $177.11 billion in 2028.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Technology - Hardware picks, beginning with the third choice.
Stock #3: Apple Inc. (AAPL)
AAPL designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The company offers iPhone, Mac, iPad, wearables, home, and accessories, including AirPods, Apple TV, Apple Watch, Beats products, and HomePod. It also provides AppleCare support and cloud services and operates various platforms, including the App Store.
In terms of the trailing-12-month net income margin, AAPL’s 25.31% is significantly higher than the 2.11% industry average. Likewise, its 29.82% trailing-12-month EBIT margin is 507.2% higher than the industry average of 4.91%. Furthermore, the stock’s 38.70% trailing-12-month Return on Total Capital is significantly higher than the industry average of 2.53%.
AAPL’s net sales from the services segment for the fourth quarter that ended September 30, 2023, increased 16.3% year-over-year to $22.31 billion. Its gross margin rose 6.1% from the year-ago quarter to $40.43 billion. The company’s net income and earnings per share came in at $22.96 billion and $1.46, representing an increase of 10.8% and 13.2% year-over-year, respectively.
For the quarter ending December 31, 2023, AAPL’s EPS and revenue are expected to increase 11.3% and 0.7% year-over-year to $2.09 and $117.95 billion, respectively. It has surpassed the Street EPS estimates in three of the trailing four quarters. The stock has gained 37.9% year-to-date to close the last trading session at $179.23.
AAPL’s positive outlook is reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality. Within the B-rated Technology - Hardware industry, it is ranked #23 out of 38 stocks. To see AAPL’s Growth, Value, Momentum, Stability, and Sentiment ratings, click here.
Stock #2: Canon Inc. (CAJPY)
Headquartered in Tokyo, Japan, CAJPY manufactures and sells office multifunction devices (MFDs), laser and inkjet printers, cameras, medical equipment, and lithography equipment worldwide. The company operates through a Printing Business Unit, an Imaging Business Unit, a Medical Business Unit, an Industrial Business Unit, and other segments.
In terms of the trailing-12-month net income margin, CAJPY’s 6.44% is 204.8% higher than the 2.11% industry average. Likewise, its 9.17% trailing-12-month EBIT margin is 86.6% higher than the 4.91% industry average. Additionally, its 8.38% trailing-12-month Return on Common Equity is 725.8% higher than the 1.01% industry average.
CAJPY’s net sales for the third quarter ended September 30, 2023, increased 2.9% year-over-year to ¥1.03 trillion ($6.88 billion). Its operating profit rose 1.5% year-over-year to ¥82.62 billion ($551.82 million).
The company’s net income attributable to CAJPY increased 14.8% year-over-year to ¥62.13 billion ($414.97 million). In addition, its EPS came in at ¥62.62, representing an increase of 18.4% year-over-year.
Street expects CAJPY’s revenue for the quarter ending June 30, 2024, to increase 1.8% year-over-year to $7.47 billion. Over the past year, the stock has gained 15.1% to close the last trading session at $24.80.
It’s no surprise that CAJPY has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value, Stability, and Quality. Within the same industry, it is ranked #10. In total, we rate CAJPY on eight different levels. Beyond what we stated above, we also have given CAJPY grades for Growth, Momentum, and Sentiment. Get all the CAJPY ratings here.
Stock #1: Dell Technologies Inc. (DELL)
DELL designs, develops, manufactures, markets, sells, and supports various comprehensive and integrated solutions, products, and services in the Americas, Europe, the Middle East, Asia, and internationally. The company operates through two segments, Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG).
On July 19, 2023, DELL announced that it had entered into a definitive agreement to acquire Moogsoft, a company specializing in AI-driven intelligent monitoring solutions for DevOps and ITOps. This acquisition strengthens DELL's AIOps capabilities and aligns with its "multi-cloud by design" strategy.
In terms of the trailing-12-month Capex/Sales, DELL’s 3.02% is 25% higher than the 2.42% industry average. Likewise, its 5.54% trailing-12-month EBIT margin is 12.8% higher than the 4.91% industry average. Additionally, its 3.02% trailing-12-month Capex/Sales is 25% higher than the 2.42% industry average.
DELL’s total net revenue for the second quarter ended August 4, 2023, came in at $22.93 billion. Its non-GAAP operating income rose 1.3% year-over-year to $1.98 billion. The company’s non-GAAP net income increased 1.3% year-over-year to $1.28 billion. In addition, its non-GAAP EPS came in at $1.74, representing an increase of 3.6% year-over-year.
Analysts expect DELL’s EPS for the quarter ending January 31, 2024, to increase 0.3% year-over-year to $1.80. Its revenue for the quarter ending April 30, 2024, is expected to increase 6.8% year-over-year to $22.35 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 84.5% to close the last trading session at $71.97.
DELL’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #6 in the Technology – Hardware industry. It has an A grade for Sentiment and a B for Growth and Value. Click here to see DELL’s Momentum, Stability, and Quality ratings.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
AAPL shares were trading at $181.27 per share on Tuesday afternoon, up $2.04 (+1.14%). Year-to-date, AAPL has gained 40.11%, versus a 15.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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