Below are three undervalued tech stocks that are trading at cheap valuations, according to the growth price (fcf) using a 15% discount rate, and that have strong balance sheets. They have a strong liability to assets ratio, which makes them financially healthy to withstand any dangers in the future.
We hope you’ll use this report as a starting point in your analysis.
Cisco Systems, Inc. designs, manufactures and sells Internet protocol (IP)-based networking and other products related to the communications and information technology industry worldwide. It offers routers that interconnect public and private IP networks for mobile, data, voice and video applications.
In terms of its fundamentals, it looks strong where it isn’t overpaying its dividends despite healthy net profit margins at 15%. Cisco is also capital-intensive but it has been able to keep an exceptional amount of cash.
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Cisco’s economic moat has been maintained at acceptable levels as it boasts strong gross margins at 61.40%.
But, Cisco has slashed its long-term forecasts due to an increasing number of rivals and worrisome outlook for government and corporate tech spending. Troubles in the finance sector may also lead to a tech spending slowdown, but future growth margin projections of 60% are still above industry estimates. (source)
If tech spending continues uninterrupted and Cisco can maintain its competitive edge, it is defiantly a stock worth looking into.
Undervalued by: 40.10%
QLogic Corporation (QLGC)
QLogic engages in the design and supply of storage networking, high performance computing networking and converged networking infrastructure solutions. It offers various host products; including fiber channel and Internet small computer systems interface host bus adapters.
QLogic may be building PCIe flash cards. Given that QLogic makes Fibre Channel HBAs, InfiniBand adapters, and Ethernet CNAs that plug into a server’s PCIe bus, adding a PCIe flash card product, either stand-alone or integrated with these adapters looks like a logical move and one that would be supported by QLogic’s reseller channels. (source)
QLogic’s free cash flow has consistently been impressive. Its management of cash (167.3m in free cash flow) and shareholder’s equity has led to a strong cash return on invested capital with 57.53% and a return on equity of 23.14% in the 2011 fiscal year.
Low capital intensity has also been maintained where the capital expenditure ratio had been reduced from 44.64% in 2010 to 16.72% in 2011.
Undervalued by: 30.52%
Peerless Systems Corporation (PRLS)
Peerless Systems Corporation holds the right to license the imaging technology and third party imaging technologies. The company is also pursuing other investment opportunities in order to diversify its offerings.
Although it boasts a strong balance sheet, second quarter results shows that revenues were $0.4 million for the first three months compared to $0.7 million of the second quarter of 2010. They experienced a decrease in licensing revenues due to the declining use of its technology and the earthquake in Japan. (source)
However, its competitive advantage is still impressive with a 66.97% net profit margin as well as a strong pricing power is 69.88% in the 2011 fiscal year.
If Peerless can continue to manage its existing customer relations as well as focus on finding new venture opportunities or acquiring an existing business, it may be able to regain lost ground.
Undervalued by: 99.38%