After a significant market correction, there are a number of tech stocks that are now trading at dirt cheap valuations. Tech stocks are likely to lead the stock market in any significant rebound and this makes the current buying opportunity very appealing. There are many tech companies with billions in cash on the balance sheet and this is one of many reasons why the tech sector a solid place to invest long term. High cash levels also means we are likely to see takeover deals which might boost a few tech stocks significantly and suddenly. Some of these tech stocks are special situations like OmniVision (NASDAQ:OVTI
) and Wells-Gardner (NYSEMKT:WGA
) which is explained in more detail below. The companies listed here have one or more of these attributes: a solid balance sheet, buyout potential, a product line and revenue catalyst, and a low valuation. These are solid companies that appear undervalued and likely to rise sooner or later. Here are some of the names worth looking at:
OmniVision Technologies shares are trading at $16.69. OmniVision sells the Camerachip sensors used in mobile phones and other computer devices. The 50-day moving average is about $24.45 and the 200-day moving average is about $29.40. These shares have traded in a 52 week range between $16.77 and $37.04. Earnings estimates for OVTI are about $2.93 per share in 2011.
This stock dropped significantly in the past couple of weeks when the company lowered guidance, leading some to wonder if this was over whether or not Apple (NASDAQ:AAPL
) would still keep OmniVision as a main supplier. A recent Barron's article
states, "Daniel Amir, Lazard Capital:
Reiterates a Buy rating on the shares and a $37 price target." He writes that the drop is a buying opportunity, as
we believe the lowered guidance does not imply share loss on the Apple front which could be misunderstood and we view this as a buying opportunity. We continue to believe that iPhone 4S will ship with OVTI despite speculation that Sony (NYSE:SNE) could replace OVTI as the main source especially with the delay in BSI-2 product ramp. Our checks show that Sony lacks the capacity to supply Apple this year and OVTI remains the supplier.” Amir cut this year’s estimates to $1.08 billion in revenue and $2.39 per share in profit, down from $1.17 billion and $2.95 per share.
This stock is still acting weak so it only makes sense to buy in stages in case it drops further.
Wells-Gardner Electronics Corp.
) shares are trading at $2.30. WGA is a leading maker and distributor of LCD flat panel displays and digital monitors. This company supplies its products to gaming machine manufacturers, casinos, and coin-operated video game manufacturers. It is also a leading parts distributor, service center and seller of casino gaming machines. The 50-day moving average is about $2.04 and the 200-day moving average is about $2.10. The 52 week range is $1.68 to $2.97. This company has been paying a 5% stock dividend for the past few years. With many states desperate to create jobs and boost tax revenues, more states like Illinois and just recently Massachusetts are approving
casino gambling. This new trend is expected to radically boost revenues at WGA, starting next year. WGA recently announced net earnings for the second quarter ending June 30, 2011 were $600,000 or $0.05 per share, a 36 per cent increase over net earnings of $441,000 or $0.04 per share in the same period the prior year. While this company appears to be undervalued based on the current business operations, the real kicker could be a catalyst coming next year due to new laws in Illinois for video gaming which could almost double revenues for this company in 2012 alone and more in 2013. The company states:
Given that the Illinois Supreme court unanimously upheld the Capital Spending Bill and hence the Video Lottery Terminal (VLT) business, we are currently estimating that the Illinois Video Lottery will begin in the second quarter 2012. As a result we expect that sales for the full year 2011 will be in the range of $45 to $48 million, compared to $45.7 million in 2010, as the worldwide gaming slot machine market remains sluggish. Second half sales are expected to increase from prior year by between 10 and 30 per cent however earnings will continue to be affected by spending for the Illinois VLT market without revenue. We expect Company sales will be in the range of $70 to $80 million in 2012 as the Illinois Video Lottery business gets started.
This stock is likely to make a very large move up if sales go from about $45 to $48 million in 2011 to as much as $80 million in 2012. WGA stock is showing new strength and the chart looks like it is poised to make a big move soon. This stock is likely to move to over $3.50 per share in the short term and then trade at $6 to $8 per share sometime in 2012 as video lottery sales ramp up.
) shares are trading at $11.50. Seagate is a leading data storage device maker. The 50-day moving average is about $12.63 and the 200-day moving average is about $14.42. Earnings estimates for STX are just over $1.60 per share in 2011 and $2.24 for 2012. STX pays a dividend of 72 cents per share which is equivalent to a yield of 6%. Seagate looks undervalued, and has had persistent buyout interest for many months now. It could take awhile for this stock to move, but a takeover deal could come and change the price of this stock quickly.
Iridium Communications, Inc.
) shares are trading at $7.94. This company provides voice and data communications via satellite and is based in Maryland. The 50-day moving average is about $7.73 and the 200-day moving average is about $8.26. Earnings estimates are about 59 cents for 2011 and 77 cents for 2012. This gives IRDM shares a PE ratio of only about 10 times earnings. The book value is $9.33. Iridium is trading at a very reasonable valuation and is a leader in satellite based communications. A fund manager recently said
Iridium is on their list of possible takeover targets.
) shares are trading at $2.47. COOL is a video game company based in New Jersey. The shares have traded in a range between 49 cents to $4.53 in the past 52 weeks. The 50-day moving average is $2.44 and the 200-day moving average is $2.33. Earnings estimates for COOL are about 38 cents per share in 2011, and 44 cents for 2012. This stock had made an incredible run from under $1 to over $4 per share, and when it was close to the highs, I was bearish on this stock because I believed it had run too far too fast. However, it has pulled back sharply and the stock looks more interesting now. This company has seen revenues and the earnings outlook improve due to popular new releases.
) shares are trading at $13.58. GLW makes a variety of products ranging from touch screen glass to fiber optics. The shares have traded in a range between $13.11 to $23.43 in the past 52 weeks. The 50-day moving average is $14.97 and the 200-day moving average is $18.78. Earnings estimates for GLW are about $2 per share in 2011, so the P/E ratio is around 7 on these shares. GLW pays a dividend of 20 cents per year, which is equivalent to a 1.4% yield. With a weaker global economy, consumer demand for televisions appears to be slowing down and that outlook has hurt GLW shares. However, this company has a lot going for it and demand for touch screen glass used in iPads and other mobiles devices should offset at least some weakness in televisions. I think it makes sense to average into GLW over time as it could drop further.
) shares are trading at $15.19. Dell is a leading maker of computers and related products, and is based in Texas. The 50-day moving average is about $15.32 and the 200-day moving average is $15.05. Earnings estimates for DELL are expected to be $2 for 2011 and $1.96 for 2012. The book value is $4.55 per share. Dell might be an interesting target for a major company, as many of them have substantial cash balances and are looking for growth. Some have speculated that Cisco (NASDAQ:CSCO
) or Oracle (NYSE:ORCL
) could have an interest in buying Dell in order to more fully compete with other rivals. There has also been speculation
that Michael Dell (founder of Dell Computer) might try to take Dell private. Whatever happens, DELL shares are likely to rise from these levels.
) shares are trading at $22.84. HPQ is a leading technology company with products ranging from computers to printers. The 50-day moving average is $29.54 and the 200-day moving average is $38.05. Earnings estimates for HPQ are at $4.84 per share in 2011, and $4.78 for 2012. This gives HPQ a super low PE ratio of only about 5. HPQ pays a dividend of 48 cents per share which is a yield of 2%. With a PE ratio of 5, chances are these shares have hit rock bottom and are a solid long term buy. This seems to be one of the most hated tech stocks out there. I think the market is overly pessimistic for the long term and these shares can bounce back, sooner or later. If management doesn't turn the share price around soon, a new team is likely and that would also probably boost the stock. HPQ shares are worth at least double the current price with the right management team.
The data is sourced from Yahoo Finance and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I am long OVTI, HPQ, WGA, GLW.
Disclaimer: Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes only.