Welcome to the tech sector's fifteenth edition of "Buy on Weakness?", a series of articles that sifts through the underperformers of the week to find potential investment opportunities in the large-cap tech world.
The table below highlights the top 20 tech companies - worth $10 billion or more in total equity value - that have performed the poorest in the previous five trading days.
Source: DM Martins Research, using market data compiled from Zacks
Coming off of another solid week for the S&P 500 and the Dow, the tech sector continues to climb with a +1.5% return overall. But as earning season continues to gather steam, nearly 40% of the tech stocks we tracked ended this past week in the red.
Infosys Limited (NASDAQ:INFY), down 10.1% for the week, continues to fall (see below for additional analysis), featuring yet again within the top three tech losers. Softbank (OTCPK:SFTBY) was down 11.4% this past week on continued concerns over the pending ARM acquisition. Wipro (NYSE:WIT) was down 8.9% on earnings and revenue misses announced this week.
Diving deeper into the data
The top 20 tech losers of the week have a median 2017 forward P/E of 17.6x, compared to the S&P 500's median trailing P/E of 14.6x and the overall tech sector's 25.9x. This week's top 20 group is expected to grow EPS in 2017 by 12.7%, and the companies generate median dividend yield of 1.5% (13 of the 20 companies are dividend-payers).
The table below highlights, in green font, the three best-positioned tech companies in each of the following categories: projected EPS growth, dividend yield, forward P/E and forward PEG (P/E divided by percentage-point EPS growth).
Source: DM Martins Research, using data compiled from Yahoo Finance and Market Watch
Is Infosys a bargain?
With Infosys down big for another week, we will take a closer look as to whether this might be the right buying opportunity for this stock. Down 24% off of its 52 week high in April, Infosys still trades above the median trailing P/E of the S&P. Infosys has a 12.5% growth estimate with a moderate dividend yield and PEG ratio.
Infosys continued to slide after missing on revenue and earnings due to lower than expected growth rates in services.
- The bull case: SA author Chanchal Beriwala published an article in early June with a potential buy target of $17, when the stock was trading around $19, citing the company's automation and AI strategy to combat shrinking industry margins. Infosys reported signing three new $100 million+ clients in their most recent press release.
- The bear case: Although still expected to reach double-digit growth and high operating margins, the company has revised both metrics down. Although Infosys has shifted its strategy to accommodate the rapidly changing demands of clients, the company is also at the mercy of the economic conditions facing their clients, along with currency risk due to much of its revenue being derived from overseas.
Right time for Symantec (NASDAQ:SYMC)?
If you are looking for growth, how does 30.6% sound? Down 2.2% this week, Symantec has the lowest PEG of this week's losers (0.6x), with a 2017 Forward P/E of 14.5x that falls below the median trailing P/E of the S&P. After the stock took some big hits in 2016, Symantec has continued to recover and is hovering around the trading price at the beginning of the year, which is still 13% off the 52-week high.
- The bull case: After getting beaten up for most of the year through early June, the announcement of the acquisition of Blue Coat helped pick Symantec's shares back up. The acquisition is projected to have significant cost synergies as well as expand Symantec's market into the rapidly growing enterprise security segment. SA author Bert Hochfield argues how the new management coming over from Blue Coat, which was previously owned by Bain Capital, along with a potential low ball on the revenue synergies, might mean good things are in store for Symantec.
- The bear case: Although the market has reacted well to the deal, SA author The Value Investor contests that the price for Blue Coat was steep and will force Symantec to operate under high debt levels, while the synergies from the deal may be overhyped.
Research report authored by third-party contributor and edited by Daniel Martins
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Research report authored by third-party contributor and edited by Daniel Martins