A confluence of economic and political factors exacerbated the tech stock rout last month. An impending 50-basis-point interest rate hike this month, coupled with a weak earnings season for various big tech companies, is expected to keep tech stocks under pressure in the near term.
Despite the risk-off environment, several tech stocks have maintained strong balance sheets, attractive valuations, and positive analyst sentiments. Furthermore, the recent tech sell-off provides a golden opportunity to invest in quality tech stocks at a discount. Given their impressive growth attributes, we think it could be wise to invest in high-quality tech stocks GoDaddy Inc. (GDDY) and International Business Machines Corporation (IBM).
Conversely, there are various tech stocks that do not possess the requisite fundamentals to endure the volatile market condition. So, we believe fundamentally weak tech stocks Robinhood Markets, Inc. (HOOD) and PagSeguro Digital Ltd. (PAGS) are best avoided considering their limited growth and weak financials.
Stocks to Buy:
GoDaddy Inc. (GDDY)
GDDY in Scottsdale, Ariz.,designs and develops cloud-based technology products in the U.S. and internationally. The company offers domain name registration products, shared website hosting products, and security products. In addition, it provides presence products, business application products, and internet-based telephony products. It serves individuals, small businesses, organizations, developers, and domain investors.
In February, GDDY entered accelerated share repurchase agreements with Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC to repurchase an aggregate $750 million of its Class A common stock. "We are committed to delivering value to shareholders through reducing our share count over time," said Mark McCaffrey, GDDY's CFO.
In January, GDDY launched Social Site GoDaddy Studio's bio site tool. Using this tool, users can generate a personalized "go.studio" link to a simple and free site where they can aggregate links to their online presence. This will help them grow their businesses by attracting traffic to their content. This launch is expected to extend the company's customer reach and boost profitability.
In the fiscal year 2021 fourth quarter ended December 31, 2021, GDDY's total revenue increased 16.6% year-over-year to $1.02 billion, while its operating income improved 34.9% from the year-ago value to $124.80 million. Its net income attributable to GDDY per share of Class A common stock came in at $0.52, registering an increase 26.8% from the prior-year period.
The consensus revenue estimate of $989.20 million for the fiscal 2022 first quarter ended March 2022 represents an increase of 9.8% from the year-ago value. It is no surprise that GDDY has surpassed the consensus revenue estimates in each of the trailing four quarters. The consensus EPS estimate of $0.85 for the to-be-reported quarter indicates a 32.8% year-over-year rise.
The stock has gained 21.6% over the past six months and closed yesterday's trading session at $81.74.
GDDY's POWR Ratings reflect this promising outlook. It has an overall grade of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
GDDY has a grade of A for Growth and a B grade for Sentiment. Within the Software - Business industry, it is ranked #9 of 60 stocks.
To see additional POWR Ratings (Stability, Momentum, Value, and Quality) for GDDY, click here.
Click here to check out our Software Industry Report for 2022
International Business Machines Corporation (IBM)
IBM in Endicott, N.Y., offers integrated solutions and services worldwide. The company operates through four segments: Software; Consulting; Infrastructure; and Financing. It provides hybrid cloud platform and software solutions, transaction processing software, business transformation services, system integration services, technology consulting services, and cloud platform services. In addition, it offers on-premises and cloud-based server and storage solutions and financing services.
On April 26, IBM's board of directors declared a regular quarterly cash dividend of $1.65 per common share, payable on June 10, 2022. The company has increased its quarterly cash dividend for the 27th year in a row. This reflects its strong financial position and ability to return value to the shareholders.
On April 21, IBM and Red Hat, Inc. entered a five-year collaboration to modernize the U.S. Department of Education's G5 grants management system with open, hybrid cloud technologies and help improve efficiency and effectiveness and drive transparency. This is expected to boost the company's growth and profitability.
In the same month, IBM unveiled IBM z26, its next-generation system with an integrated on-chip AI accelerator-delivering inferencing. "Now with IBM z16 innovations, our clients can increase decision velocity with inferencing right where their mission critical data lives. This opens tremendous opportunities to change the game in their respective industries so they will be positioned to deliver better customer experiences and more powerful business outcomes," said Ric Lewis, SVP, IBM Systems.
IBM's total revenue increased 7.7% year-over-year to $14.20 billion in its fiscal year 2022 first quarter, ended March 31, 2022. Its gross profit grew 4.4% year-over-year to $7.34 billion. Its income from continuing operations rose 64.3% from the prior-year period to $662 million. And the company's earnings per share from continuing operations improved 62.2% year-over-year to $0.73.
Analysts expect IBM's revenue for its fiscal year 2022, ending Dec. 31, 2022, to come in at $60.94 billion, representing a 6.3% rise year-over-year. It has surpassed the consensus revenue estimates in three of the trailing four quarters. The Street expects the company's EPS for the current year to be $9.79, representing a 23.5% increase year-over-year. Furthermore, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained marginally in price over the past month. It closed yesterday's trading session at $132.52.
IBM's POWR Ratings reflect a strong outlook. The stock has an overall B rating, which translates to Buy in our POWR Ratings system.
IBM has a grade of B for Value and Quality. It is ranked #20 of 81 stocks in the Technology - Services industry.
Click here to see IBM's POWR Ratings for Growth, Sentiment, Stability, and Momentum.
Stocks to Avoid:
Robinhood Markets, Inc. (HOOD)
HOOD in Menlo Park, Calif., operates a financial services platform in the U.S. The company's platform enables users to invest in stocks, exchange-traded funds (ETFs), gold, options, and cryptocurrencies. In addition, it provides learning and education solutions, including Snacks, a digest of business news stories, Newsfeeds that gives access to free premium news from different sites, and first trade recommendations for new customers.
For its fiscal 2022 first quarter ended April 28, 2022, HOOD's total net revenues increased 42.7% year-over-year to $299 million. Its total operating expenses increased 48.7% from its year-ago value to $690 million. Its loss before income taxes was valued at $391 million for the first quarter. And the company's net loss and net loss per share attributable to common stockholders amounted to $392 million and $0.45, respectively.
Last December, the Schall Law Firm, a national shareholder rights litigation firm, announced that it had filed a class action lawsuit against HOOD for allegedly making false and misleading statements to the market.
The $353.21 million consensus revenue estimate for its fiscal year 2022 second quarter, ending June 30, 2022, represents a 37.5% year-over-year decline from the prior-year period. Also, the company has missed consensus revenue estimates in three of the trailing four quarters. The $0.34 consensus loss per share estimate for the third quarter, ending Sept. 30, 2022, indicates a 361.4% year-over-year rise.
The stock decreased 45.2% in price year-to-date and 71% over the past year. It closed yesterday's trading session at $10.10.
HOOD's POWR Ratings reflect its weak prospects. The company has an overall D rating, which translates to Sell in our proprietary rating system.
HOOD has an F grade for Stability and Sentiment. It has a D grade for Value and Quality. It is ranked #136 of 155 stocks in the F-rated Software - Application industry.
To see additional POWR Ratings (Momentum and Growth) for HOOD, click here.
Click here to check out our Software Industry Report for 2022
PagSeguro Digital Ltd. (PAGS)
Headquartered in São Paulo, Brazil, PAGS offers financial technology solutions and services for consumers, entrepreneurs, micro-merchants, and small- and medium-sized companies in Brazil and internationally. In addition, the company offers banking services, online gaming, and cross-border digital services. Further, it engages in processing back-office solutions and in-person payment activities through POS devices.
PAGS' non-GAAP recurring total expenses increased 79.3% year-over-year to R$2.68 billion ($531.93 million) in its fiscal 2021 fourth quarter, ended Dec. 31, 2022. Its non-GAAP recurring profit before taxes declined 6.6% year-over-year to R$557 million ($110.55 million). Its adjusted EBITDA decreased 15.7% year-over-year to R$612.10 million ($121.49 million). And the company’s net income for the period declined 19.8% from the prior-year period to R$301.30 million ($59.80 million).
The stock has plunged 58.2% in price over the past six months and 67.9% over the past year. Also, PAGS' year-to-date decline translates to 49.7%.
PAGS' POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which translates to Strong Sell in our proprietary rating system.
PAGS has an F grade for Stability and a D grade for Growth, Sentiment, and Quality. Within the D-rated Financial Services (Enterprise) industry, it is ranked #103 of 108 stocks.
To see PAGS' POWR Ratings for Momentum and Value, click here.
GDDY shares were trading at $80.10 per share on Wednesday afternoon, down $1.64 (-2.01%). Year-to-date, GDDY has declined -5.61%, versus a -11.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
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.
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