With businesses keeping up to date with advanced hardware amid rapid digital transformation worldwide and rising adoption of new cutting-edge technologies, demand for tech hardware components and devices will likely surge, offering ample growth opportunities to the industry players.

Given the industry’s promising growth outlook, investing in fundamentally sound tech stock Logitech International S.A. (LOGI) could be wise this month. However, investors could hold Apple Inc. (AAPL) and Toshiba Corporation (TOSYY) wait for a better entry point in these stocks.

The tech hardware industry is fast-growing and constantly evolving. The COVID-19 pandemic brought several opportunities for the industry players. Given the increased shift to remote work, widespread adoption of online learning, and high reliance on digital technology for communication, shopping, and entertainment during lockdowns, tech hardware saw a significant surge in demand.

Moreover, the pandemic sped up the digital transformation across various industries. Businesses of all sizes and sectors boosted their investments in cybersecurity, cloud-based solutions, remote collaboration tools, distance learning models, and other tech hardware products and solutions to adapt to the evolving circumstances and operate more efficiently and competitively.

According to a report by Mordor Intelligence, the IT hardware market is projected to reach $177.11 billion by 2028, growing at a CAGR of 7.9% during the forecast period (2023-2028).

With businesses keeping up to date with hardware, demand for IT hardware components and devices, including personal computers (PCs), laptops, servers, storage devices, networking equipment, peripherals (like keyboards and printers), and other electronic devices, would grow significantly in the long term.

The rapid growth of the IT industry is a primary driver for the IT hardware market. IT is crucial in several sectors, such as healthcare, education, finance, manufacturing, entertainment, and retail. As the industry expands, the demand for tech hardware rises correspondingly.

As per the forecast by Gartner, worldwide IT spending is expected to reach $4.7 trillion in 2023, representing an increase of 4.3% from 2022.

The growing digitization of the public sector also boosts the hardware industry’s prospects. Governments globally recognize the benefits of digital technology and are implementing initiatives to improve their service delivery, enhance efficiency, and offer better citizen-centric solutions. Gartner forecasts global government IT spending to total $589.80 billion this year, up 7.6% from 2022.

Growing adoption of emerging digital technologies, including Artificial Intelligence (AI), Machine Learning (ML), big data, blockchain, the Internet of Things (IoT), Augmented Reality and Virtual Reality (AR&VR), and 5G are propelling the demand for specialized hardware components.

The global AI in hardware market is expected to surpass $248.09 billion by 2030, growing at a CAGR of 24.5% from 2023 to 2030. The increasing deployment and rapid advancements of dynamic hardware related to AI applications will lead to solid growth in the market.

Considering these conducive trends, let’s analyze the fundamental aspects of the three Technology - Hardware picks, beginning with the third choice.

Stocks to Hold:

Stock #3: Apple Inc. (AAPL) 

Consumer electronics giant AAPL designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories internationally. The company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; wearables and accessories consisting of AirPods, Apple TV, Apple Watch, and more.

On September 12, Apple unveiled the iPhone 15 lineup, including the iPhone 15, iPhone 15 Plus, iPhone 15 Pro and iPhone 15 Pro Max. The new handsets feature a strong and lightweight titanium design with new contoured edges, a new Action button, powerful camera upgrades, and A16 Bionic/A17 Pro for next-level performance and mobile gaming.

On the same day, the company unveiled the Apple Watch Ultra™ 2, bringing new features to Apple’s most capable and rugged smartwatch and achieving a significant environmental milestone.

Apple Watch Ultra 2 offers all the features users love about Ultra, coupled with the powerful new S9 SiP, a magical new double tap gesture, Apple’s brightest display ever, extended altitude range, on-device Siri®, Precision Finding for iPhone®, and advanced capabilities for water adventures. Such advancements in AAPL’s product portfolio should boost its growth and profitability.

AAPL’s trailing-12-month gross profit margin of 43.45% is 11% lower than the 48.82% industry average. However, the stock’s trailing-12-month net income margin of 24.68% is significantly higher than the industry average of 2.03%.

In terms of forward non-GAAP P/E, AAPL is trading at 28.42x, 32.8% higher than the industry average of 21.40x. In addition, the stock’s forward Price/Sales and Price/Cash Flow of 7.03x and 23.46x compare unfavorably to the respective industry averages of 2.52x and 19.92x.

AAPL’s net sales decreased 1.4% year-over-year to $81.80 billion for the third quarter that ended July 1, 2023. Its operating income declined marginally year-over-year to $23 billion. However, the company’s gross margin grew 1.5% from the year-ago value to $36.41 billion.

Furthermore, the company’s net income and earnings per share were $19.88 billion and $1.26, increases of 2.3% and 5% year-over-year, respectively. As of July 1, 2023, AAPL’s cash and cash equivalents were $28.41 billion, compared to $23.65 billion as of September 24, 2022.

Analysts expect AAPL’s revenue to decline 1% year-over-year to $88.29 billion for the fourth quarter ending September 2023. However, the consensus earnings per share estimate of $1.39 for the same quarter indicates a 7.5% year-over-year improvement. Also, the company has surpassed the consensus EPS estimates in three of the trailing four quarters.

Shares of AAPL have gained 37.8% year-to-date to close the last trading session at $172.40. However, the stock has declined 8.4% over the past month.

AAPL’s POWR Ratings reflect its mixed prospects. The stock has an overall C rating, equating to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a C grade for Stability, Sentiment, and Momentum. It is ranked #21 out of 42 stocks in the Technology - Hardware industry.

Click here for the additional POWR Ratings for AAPL (Growth, Quality, and Value).

Stock #2: Toshiba Corporation (TOSYY)

TOSYY offers electronic devices and storage solutions worldwide. The company operates through five segments: Energy Systems & Solutions; Infrastructure Systems & Solutions; Building Solutions; Digital Solutions; and Other segments. It is headquartered in Tokyo, Japan.

On September 27, TOSYY developed the world’s first LiDAR with an unmatched accuracy of 99.9% in object accuracy and object recognition of 98.9% with data acquired by the LiDAR alone. Also, the technologies considerably improve the environmental robustness and the potential for LiDAR in several applications.

TOSYY’s trailing-12-month EBIT margin of 5.51% is 43.4% lower than the industry average of 9.74%. Also, its trailing-12-month ROCE and ROTC of 6.10% and 6.23% compare to the industry averages of 13.59% and 6.79%, respectively.

In terms of forward EV/ Sales, TOSYY’s 0.68x is 58.2% lower than the 1.64x industry average. Moreover, the stock’s forward Price/Sales multiple of 0.57 is 56.5% lower than the industry average of 1.32.

For the first quarter that ended June 30, 2023, TOSYY’s operating income was ¥11.44 billion ($76.51 million), compared to an operating loss of ¥4.81 billion ($32.17 million) in the same quarter of 2022. However, the company’s net sales declined 4.9% year-over-year to ¥704.11 billion ($4.71 billion).

Also, Net loss attributable to shareholders of the company stood at ¥25.39 billion ($169.80 million), compared to net income of ¥25.89 billion ($173.15 million) in the prior year’s period. Its loss per share came in at ¥58.68 versus earnings per share of ¥59.50 in the corresponding period of 2022.

Analysts expect TOSYY’s revenue for the fiscal year (ending March 2024) to increase significantly year-over-year to $21.73 billion. For the fiscal year 2025, the company’s revenue is expected to grow 2.6% from the previous year to $22.28 billion.

TOSYY’s stock plunged 1.5% to close the last trading session at $15.31.

TOSYY’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system.

TOSYY is ranked #18 in the same industry. It has a C grade for Quality, Sentiment, Growth, and Sentiment.

In addition to the POWR Ratings I’ve just highlighted, you can see TOSYY’s ratings for Value and Momentum here.

Stock to Buy:

Stock #1: Logitech International S.A. (LOGI)

Headquartered in Lausanne, Switzerland, LOGI designs, manufactures, and markets products that connect people to working, creating, gaming, and streaming. It provides pointing devices like wireless mouse, corded and cordless keyboards and keyboard-and-mouse combinations; PC webcams; keyboards for tablets and smartphones and other accessories.

On September 19, LOGI launched three new products for the gaming and streaming space: the Logitech G Yeti GX microphone, the Logitech G Yeti Orb microphone, and the Logitech G Litra Beam LX light.

The Yeti microphones and Litra light are designed to meet the specific needs of game streamers and content creators by using broadcast-style audio and pro-level lighting gear and work seamlessly together through Logitech’s G Hub software to allow them to deliver great content to their community. The new launches are expected to extend LOGI’s customer reach and drive sales.

On September 13, LOGI announced that during its annual general meeting (AGM), the company’s shareholders approved a dividend of nearly CHF 1.06 ($1.15) per share, an increase of approximately CHF 0.10 ($0.11) compared to the fiscal year 2022 dividend. An increased annual dividend reflects the company’s commitment to return capital to shareholders.

LOGI’s trailing-12-month EBIT margin of 10.69% is 129.4% higher than the industry average of 6.66%. Also, the stock’s trailing-12-month net income margin of 7.50% is 268.7% higher than the industry’s average of 2.03%.

LOGI’s forward EV/Sales of 2.40x is 7.3% lower than the industry average of 2.59x. Likewise, the stock’s trailing-12-month Price/Cash Flow multiple of 13.43 is 26.4% lower than the industry average of 18.24.

LOGI reported net sales of $974.50 million for the first quarter that ended June 30, 2023. Net cash provided by operating activities came in at $239.80 million, compared to net cash used in operating activities of $35.67 million in the prior year’s quarter. As of June 30, 2023, the company’s cash and cash equivalents were $1.25 billion versus $1.15 billion as of March 31, 2023.

In addition, the company’s current liabilities reduced to $957.14 million as of June 30, 2023, compared to $1.05 billion as of March 31, 2023.

Street expects LOGI’s EPS for the fiscal year (ending March 2025) to increase 29.4% year-over-year to $3.67. The consensus revenue estimate of $4.32 billion for the next year indicates a 6.8% rise year-over-year. Moreover, the company topped the consensus EPS estimates in three of the four trailing quarters.

LOGI’s shares have gained 19.8% over the past six months and 50.3% over the past year to close the last trading session at $68.66.

LOGI’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

LOGI has an A grade for Quality and a B for Sentiment. It is ranked #13 out of 42 stocks in the Technology - Hardware industry.

To access additional POWR Ratings of LOGI for Momentum, Stability, Growth, and Value, click here.

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.

2024 Stock Market Outlook >

AAPL shares fell $1.70 (-0.99%) in premarket trading Wednesday. Year-to-date, AAPL has gained 33.25%, versus a 11.46% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

More...