Don’t be fooled by the ‘value’ tag on these tech stocks. Many can provide plenty of growth too Deep Dive

By Philip van Doorn

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The curious case of Facebook

You might wonder about Facebook, which lives in both the value and growth worlds. Its forward P/E valuation of 23.2 is relatively low. But Facebook is very much a growth stock — sales increased 22% last year, and analysts expect even better revenue growth of 25% in 2021.

Facebook trades for seven times the consensus forward sales estimate, compared to a forward price-to-sales estimate of 5.9 for the entire S&P 500 tech sector. But that “high” price-to-sales ratio may not be so important because it is such a profitable company. Its 2020 operating margin of 50% is among the highest on the list.

Cody Willard called Facebook a bargain, not only because of its low P/E valuation but because of the long-term growth path for its Oculus virtual-reality hardware and software.

There are 16 companies on the list that are expected to produce double-digit increases in sales in 2021, including Skyworks Solutions Inc. /zigman2/quotes/201417573/composite SWKS -3.01% and Qualcomm Inc. /zigman2/quotes/206679220/composite QCOM -4.16% . Both are expected to grow their revenues by 21% this year.

‘Old tech’

Oracle Corp. /zigman2/quotes/202180826/composite ORCL -1.85% is an “old tech” company that can be considered a value stock, as it trades for only 15.4 times the consensus earnings estimate for the next 12 months among analysts polled by FactSet. The company reported better-than-expected results for its fiscal third quarter after the close March 10 and increased its quarterly dividend by a third . Then on March 11, the stock fell as much as 9%. That “sell the good news” reaction may not be much of a surprise, as the stock had risen 48% over the previous year through March 10.

International Business Machines Corp. /zigman2/quotes/203856914/composite IBM +0.11% is one of the cheapest stocks on the list, based on its forward P/E ratio of 11.5. The stock was up 2% from a year earlier through the close March 10. It has an attractive dividend yield of 5.10% that is supported by strong free cash flow.

Victoria Greene, a portfolio manager at G Squared Private Wealth in College Station, Texas, may have been a bit early when naming IBM as an excellent long-term play in June. But in a recent interview, she said she was still confident that there was a lot of upside for IBM “as a turnaround story and reinventing themselves,” in light of its July 2019 acquisition of Red Hat and the strength of its Watson artificial-intelligence software platform.

Wall Street’s price targets

Leaving the list of 43 tech value stocks in the same order, here’s a summary of opinion among analysts polled by FactSet:

Scroll the table to the right to see the price targets.

The analysts see double-digit upside potential for 25 of the 43 stocks over the next 12 months, with Qualcomm in the lead. Among the analysts polled by FactSet, 70% rate Qualcomm a “buy” or the equivalent. And the consensus price target implies 34% upside for the stock.

The listed stock with the highest percentage of “buy” or equivalent ratings is Facebook, at 86%. The analysts expect the stock to rise 29% over the next year.

Don’t miss: 25 small-cap stocks that analysts expect to rise as much as 64% over the next year

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