When looking for stocks that are “undervalued”, there are several facts one can consider- even speculation can be used. Many methods are used to find stocks that are considered undervalued. One popular method is PEG (Price/Earnings to Growth). I like to use this ratio because unlike the P/E, it takes into account growth. Below I have screened four stocks in the Technology sector that I believe to be undervalued given their < 1 PEG. Not only are they undervalued, but these stocks are offering dividends and an attractive 5 Star S&P rating.
I like to invest in dividend stocks because they provide a steady stream of income to live off of, whether it is monthly or quarterly. Below are four undervalued technology stocks with a 5 Star S&P rating that pay dividends and are excellent companies to consider for steady income and growth:
Applied Materials, Inc. (AMAT) provides manufacturing equipment, services and software to the global semiconductor, flat panel display, solar photovoltaic (PV) and related industries. Applied's customers include manufacturers of semiconductor wafers and chips, flat panel liquid crystal displays (LCDs), solar PV cells and modules, and other electronic devices. The current market price is $11.5 with a one-year analyst price target of $13.18. This represents a 14.61% upside potential. This upside potential takes into consideration its 5 star S&P rating, but does not include its dividend yield of 2.8%.
Based on Trailing P/E, Applied currently trades at a 50% discount to its Semiconductor Equipment Industry peers. This shows this stock has a lot of room to grow, especially when considering its performance against its peers. Applied has a market cap of 15.01B while KLA-Tencor Corporation (KLAC) has a market cap of 7.98B and Lam Research Corporation (LRCX) has a market cap of 4.6B. Also, Applied Materials has a net income of 1.93B, this compares really well with KLAC at 832.29M and LRCX at 601.86M.
The acquisition of Varian Semiconductor Equipment adds promise to this company and opens the door for future growth. Applied will try to maintain margins through tight cost controls and restructuring efforts. In addition, Varian’s better profit margin profile and potential cost synergies should aid the results for 2012 and beyond. Given a more than 80% plunge in both display and solar equipment segment orders in recent quarters, I believe that this stock has bottomed and is on the road to recovery.
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Moving Average Convergence/Divergence (MACD) indicates a bullish trend along with the 10 and 21 day moving averages of $11.17 and $10.85 respectfully. For fiscal year 2012, analysts estimate that Applied will earn $0.74. For fiscal year 2013, analysts estimate that Applied's earnings per share will grow by 58% to $1.17. I believe this shows huge growth potential and indicates a truly undervalued stock.
Avnet, Inc. (AVT) is an industrial distributor of electronic components, enterprise computer and storage products and embedded subsystems. The company distributes electronic components, computer products and software as received from its suppliers or with assembly or other value added by Avnet. Avnet has a 5 star S&P rating, which has pushed its shares toward the top of its 52-week price range of $23.69-$38 (currently trading at $31.41). The one year analyst price target is 35.58, which represents a 13.28% upside potential. The current P/E ratio is 7.24x with a forward P/E of 7.36x, which does signal some growth potential.
Another reason I am bullish with Avnet is because it has outperformed its industry and does not show much signs of slowing down. Avnet has an EPS of 4.33 compared to the industry average of 0.43. With all that being said, Avnet's forward PEG of 0.8 represents an 11% discount to its 5 year average of 0.9. Also, based on trailing P/E, Avnet currently trades at a 65% discount to its Semiconductors Industry peers. The company seeks to differentiate itself from the competition by going past normal distribution activities to offer value-added services such as: Supply chain management, engineering design, software/hardware integration and consulting. In this way, Avnet can customize products to individual customer specifications. Also, Avnet has gained a huge market share in different markets due in part to its multiple acquisitions since 2000. Some of these acquisitions include: Kent Electronics Corp, VEBA Electronics Group, Memec Group Holdings Limited, Bell Microproducts, etc.
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MACD indicates a bullish trend along with the 10, 21, and 50 day moving averages of $31.73, $30.79, and $30.20 respectively. For fiscal year 2012, analysts estimate that Avnet will earn $3.95. For the 1st quarter of fiscal year 2012, Avnet announced earnings per share of $0.90, representing 23% of the total annual estimate. For fiscal year 2013, analysts estimate that Avnet's earnings per share will grow by 10% to $4.35.
Xerox Corporation (XRX) provides a portfolio of document technology, services and software, and the diverse array of business process and information technology [IT] outsourcing support. The current market price is $8.08 with a one year analyst price target of $9.78. This represents a 21.24% upside potential. The current dividend is a healthy 2.1%, and this stock is a strong buying opportunity with its 5 star S&P rating.
Xerox has new and superior products that are expected to generate a substantial amount of revenue for the company. Also, the increase in cash and cash equivalents has improved the financial standing of the company and enhanced its liquidity and financial flexibility. Finally, the acquisition of ACS has a huge role to play in establishing Xerox as one of the largest business process enterprises in the world.
Xerox's 0.7 forward PEG is at the low end of its 5 year range (lowest 0.3 to highest 5.0). Based on trailing P/E, Xerox currently trades at a 44% discount to its Office Equipment Industry peers. Also, Xerox has revenue of 22.64B compared to the industry average of 1.06B.
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MACD indicates a bullish trend along with the 10, 21, and 50 day moving averages of $8.08. For fiscal year 2011, analysts estimate that Xerox will earn $1.08. For the 3rd quarter of fiscal year 2011, Xerox announced earnings per share of $0.22, representing 20% of the total annual estimate. For fiscal year 2012, analysts estimate that Xerox's earnings per share will grow by 8% to $1.17. I believe this stock is poised for a huge turnaround and expect a recovery back to $20 levels.
Harris Corporation (HRS), together with its subsidiaries, is an international communications and information technology company serving government and commercial markets in more than 150 countries. The current market price is $38.41 with a one year analyst price target of $47.73. This represents a 24.26% upside potential. This upside potential takes into consideration its 5 star S&P rating, but does not include its dividend yield of 2.9%.
The company's net margin has been higher than its Industry average for each of the past five years. Harris' current trailing P/E of 8.6 represents a 68% discount to its Communications Equipment Industry average. This signals an extremely undervalued company. Also compared to its peers, Harris has quarterly earnings of 3.9%: Boeing Company (BA) has 4.5%, General Dynamics Corp. (GD) has -2%, and Raytheon Corp. (RTN) has quarterly earnings of -2.2%. Another sign that shows this stock is undervalued is the 5 yr expected PEG of 0.75.
In May 2009, Harris acquired Tyco Electronics' Wireless Systems business for $675 million cash. Tyco provides wireless systems for law enforcement, fire and rescue and public service organizations. In the fourth quarter of 2011, the segment's orders rose from the prior quarter which shows significant signs of growth and improvement. In April 2011, Harris acquired Schlumberger Global Connectivity Services, which offers satellite and wireless connectivity to oil and gas customers, for $398 million. This acquisition was also a smart choice due in part to the growing demand for oil and gas. In 2011, a total of $1.1 billion was used to fund acquisitions, but in August 2011, Harris announced a $1 billion share repurchase program, with plans to use half in the first six months of the year, and raised its dividend 12% to its current 2.9%. Harris also has no long-term debt maturing until 2015, further showing how sound its balance sheet is.
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MACD indicates a bullish trend along with the 10, 21, and 50 day moving averages of $37.29, $36.24, and $36.24 respectfully. For fiscal year 2012, analysts estimate that Harris will earn $5.13. For fiscal year 2013, analysts estimate that Harris' earnings per share will grow by 6% to $5.44.