The Tech sector has underperformed the overall market all year, dragged down by the performances of Apple (AAPL) and IBM Corp (IBM) among other large cap tech stalwarts. Investors have preferred to stay defensive throughout the rally in 2013 by bidding up Consumer Staples, Utilities and Healthcare. These defensive sectors are now selling at significant premiums to the overall market despite tepid revenue growth in many of big companies (Ex, P&G) that make up a good portion of these indexes. I believe the tech sector should outperform for the rest of the year based on their discount to the overall market and as earnings improved. Here are two cheap tech shares I like here. Both recently beat expectations on their quarterly earnings reports and should move higher.
Ultra Clean Holdings (UCTT), designs and manufactures subsystems tailored to specific steps in the semiconductor manufacturing process.
4 reasons UCTT is a bargain at under $6 a share.
- The stock is up today after reported earnings that were in line on the bottom line with revenues beating consensus by more than 2%.
- The stock is cheap at 98% of book value and around 6x operating cash flow.
- The median price target on the shares by analysts that cover the stock is $8 a share. Needham upgraded the shares in the first quarter from "Hold" to "Buy".
- UCTT is priced at 11.5x forward earnings, a deep discount to its five year average (18.8).
NXP Semiconductors (NXPI) provides mixed signal and standard product solutions for radio frequency, analog, power management, interface, security, and digital processing products worldwide.
4 reasons NXPI can move higher from $25 a share:
- The company reported results that beat on the top and the bottom line. It also upped its forward guidance.
- The 13 analysts that cover the stock have a $36 a share median price target on NXPI. This is more than 40% above the current stock price.
- Consensus earnings estimates for both FY2013 and FY2014 had risen nicely over the three months before these latest results. NXPI sells for under 7.5x 2014's projected earnings.
- Analysts expect just over a 7% CAGR for revenue growth over the next two years and the stock is priced at a minuscule five year projected PEG (.31).