Tech stocks soared last year as the COVID-19 pandemic accelerated the pace of the digital transformation. As more people were forced to stay home, technology stocks soared. As we entered 2021, and people were vaccinated, and more states opened up, tech stocks took a back seat to more cyclical names.
Over the past couple of months, technology growth shares and cyclical value stocks have traded leadership in the market each day. But minus today’s market sell-off, growth stocks appear to be making a comeback. Even amidst higher inflation, long-dated Treasury yields are no longer soaring due to the massive liquidity in the market. Plus, the latest Fed minutes came in dovish, indicating officials are not ready to tighten policy.
When you add in the highly infectious strain of the Delta variant of COVID-19 and the potential for more lockdowns, tech stocks look like a good bet. Teradata Corporation (TDC), HP Inc. (HPQ), and Broadcom Inc. (AVGO) are three highly-rated technology companies in our POWR Ratings system that look poised for gains in the weeks and months ahead.
Teradata Corporation (TDC)
TDC operates in data and analytics, which captures, integrates, stores, manages, and analyzes data of all types to answer business questions and deliver insight. It also offers marketing management products to help businesses win customer loyalty. Its solutions include data warehousing, big data, discovery tools, integration tools, and business intelligence tools to manage and integrate the complex data ecosystem.
The company's efforts to expand the cloud-based features of its Vantage offering is a key growth driver. This solution is available across the top public cloud vendors, including Google Cloud, AWS, and Azure. TDC Teradata generates significant revenue from financial services, government, and healthcare, which tend to remain stable. This helps drive the company's top line.
The transition to a subscription-based business model is expected to boost recurring revenues for the company and be a long-term growth driver. Plus, TDC's robust portfolio of solutions is also expected to expand its market share in the big data market. The company has an overall grade of A, which translates into a Strong Buy rating.
TDC has a Growth Grade of A, which makes sense as the company's EBITDA grew 65.4% last year. Wall Street analysts expect earnings to surge 91.7% year over year in the second quarter. The company also has a Value Grade of A. The company has a price-to-cash-flow ratio of 15.3, which is well below the industry average.
We also provide Momentum, Stability, Sentiment, and Quality grades for TDC, which you can find here. TDC is ranked #1 in the A-rated Technology – Storage industry. You can find other top stocks in this industry by clicking here.
HP Inc. (HPQ)
HPQ is a leading provider of computers, printers, and printer supplies. Its three operating business segments are its personal systems, containing notebooks, desktops, and workstations, and its printing segment includes supplies, consumer hardware, commercial hardware, and corporate investments.
The company has benefited from strong demand for PCs, which started amid the pandemic-led remote-working and online-learning trend. In the second quarter, the company's total PC shipment increased 44% year-over-year, while notebooks increased by 63%. This is expected to continue as more people and businesses spend more on improving at-home technology products.
HPQ is also one of the largest sellers of printers. The company has been launching a variety of new models in the PC segment and in the Printing segment. In fact, the company reported a rebound in its Printing business for the second quarter. HPQ has an overall grade of B and a Buy rating in our POWR Ratings system.
The company has a Growth Grade of B as earnings rose 38.2% over the last year, while EBITDA surged 49.3%. Analysts forecast earnings to soar 71.4% in the current quarter. HPQ also has a Quality Grade of B due to its solid fundamentals. The company had $3.4 billion in cash at the end of the most recent quarter compared with only $1.2 billion in short-term debt.
For the rest of HPQ's grades (Value, Momentum, Stability, and Sentiment), click here. HPQ is ranked #4 in the B-rated Technology – Hardware industry. For more top stocks in this industry, click here.
Broadcom Inc. (AVGO)
AVGO is the combined entity of Broadcom and Avago. Its Avago business is focused primarily on radio frequency filters and amplifiers used in high-end smartphones, such as the Apple iPhone and Samsung Galaxy devices. Its Legacy Broadcom business includes networking semiconductors, such as switch and physical layer chips, broadband products, and connectivity chips.
The company is benefiting from continued strength across both its Semiconductor solutions and Infrastructure software verticals. For instance, the strong adoption of Wi-Fi 6 in access gateway and cable DOCSIS 3.1 products bode well for its long-term growth picture. Plus, the acceleration in 5G deployment and production ramp-up in radio frequency content also aids future prospects.
The Internet of Things (IoT) should create newer avenues for AVGO as it is largely believed to be the next growth opportunity in semiconductors as it has the potential for over a billion connected devices. In addition, the company continues to make acquisitions to expand the breadth and diversify its product portfolio. AVGO has an overall grade of A, translating into a Strong Buy rating in our POWR Ratings system.
The company has a Stability Grade of B as both its growth and price performance have been fairly consistent. For instance, the stock has grown EBITDA an average of 44.8% per year over the past five years. AVGO also has a Quality Grade of B due to a solid balance sheet. The company has a current ratio of 2.2, indicating it has more than enough liquidity to handle short-term needs.
To gains access to the rest of AVGO's grades (Growth, Value, Momentum, and Sentiment), click here. AVGO is ranked #4 in the B-rated Semiconductor & Wireless Chip industry. For other top-ranked stocks in this industry, click here.
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TDC shares were unchanged in after-hours trading Tuesday. Year-to-date, TDC has gained 107.88%, versus a 16.05% 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.
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