The last week has been an interesting and exciting one for the technology sectors. Many new products were launched, which have had an effect on the entire technology sector. The biggest two launches of the week were Apple (AAPL)'s iPhone 5 and Nokia (NOK)'s Lumia 920. Both devices are high class smartphones and contain minor differences in terms of hardware and capability. The stocks of both companies are closely followed and extensively analyzed, leaving little room for profit taking. Therefore, we have short-listed four technology stocks, which are a bargain and can be expected to give significant returns.
Business Software & Services
Data Storage Service
Semiconductors Equipment and Materials
Internet Information Provider
Velti PLC (VELT)
Mobile phone advertisement is the next big thing. The entire technology sector is currently in the middle of a transformational process when it comes to advertisement delivery. Giants such as Facebook (FB) and Google (GOOG) are spending billions to drive revenues from mobile advertisements. Consumers are shifting their internet usage to smartphones/tablets from personal computers. We believe that Velti can be a major beneficiary of this changing trend as the leader in mobile advertisement.
Velti PLC provides marketing and advertising solutions to brands, media groups and mobile network operators. A large chunk of Velti's customers are the world's largest telecom operators such as AT&T (T), Orange, Vodafone (VOD), Telenor, Cellular South and China Mobile (CHL). The recent investment in CASEE (the largest mobile ad network in China) shows that Velti is on the right path and can grow exponentially by dominating the lucrative mobile advertisement market. A recent development in this regard is a $27 million deal with an undisclosed major "US brand." Given that annual revenues for VELT for 2011 were $189 million this is a significant development.
The stock is currently trading at $9.7 and forward P/E of 10x. The company reported losses for the previous two quarters, in line with sell side estimates.
Source: Yahoo Finance
As the table shows the company has a history of meeting or exceeding analyst estimates. Therefore we believe the company will continue to meet analyst expectations, and the $0.72 EPS estimates for the next quarter will be met. According to consensus estimates, EPS is expected to grow by 30% YoY, and is expected to be $0.97 for 2013. Using the NASDAQ PE of 15 we can set a price target of $14. The growing potential of mobile advertising and the new mobile advertising deal are reasons we believe the stock will rebound.
Seagate Technologies (STX)
Seagate is currently one of the largest hard disk manufacturers in the world. The storage industry has slowed down in the last year, primarily due to a slowdown in the global PC industry. There are a number of reasons that can explain this dip, but the primary reason remains the high popularity of smartphones/tablet amongst consumers. We believe the launch of the Windows 8 will give a boost to global PC sales. Moreover, as consumers are shifting to cloud storage, the high capacity storage device will see continued growth. The stock is currently trading at forward P/E of 4.5x. Considering ROI of 46% and ROA of 29% (both more twice than the industry averages), STX is highly undervalued. We believe the valuations will improve and STX has the potential to trade at a P/E of 6x. The company has shown an approximate increase of 35% YoY in revenues alone, which shows the huge growth potential still available to the storage industry in general, and Seagate in particular. Using sell side EPS estimates of $7.41 for June 13, we are setting a price target of $45. Therefore, we believe the stock has a 20% upside on its current price of $37.11 and is a buy.
Groupon is a deal of a day internet website that started its operations in Chicago. We have already done a detailed analysis of GRPN. The stock has fallen from a high of $25 at the beginning of the year to $5. We believe that the fall of Groupon from $25 was justified, as the stock was trading at very high multiples, but that it's a bargain at a forward P/E of 12x. The dramatic fall can be associated to bad perception rather than any major issues with the company's fundamentals or business model. We believe the Groupon business model has a lot of potential, and a renewed marketing effort can significantly increase revenues. Coupons have been around for a long time and are still in demand. The increased pace of technological advancement combined with a bad economy is good for an online coupon business model. The company has shown revenue growth of 44% YoY in its last quarter. These profits were the result of making operations more efficient by decreasing marketing costs by 58%. This will be a key factor in creating long term shareholder value.
Investors should also recall that putting bad stock performance aside, only two years ago Google had been willing to pay $6 billion for Groupon. The company has only improved its business model since then and nothing has changed when it comes to the potential of its business model which was worth $6 billion to Google. The company missed analyst estimates in one of the last three quarters. The mean sell side EPS estimate for December 13 is $0.37. Using an industry average P/E of 20x, we are setting a December 13 price target of $7.5. Therefore the stock has a 50% upside on its current price of $4.7.
OSI Systems, Inc. (OSIS)
California-based OSI has been one of the most successful stocks of the last few last years. OSIS has increased by a whopping 95% in the last one year. The exceptional stock performance can be associated with the fact that the stock has met or beaten analyst earnings estimates in the last four quarters. The company is in the business of creating and marketing security and inspection systems. On a YoY basis, revenues have increased by 20%, and analysts are predicting EPS of $2.82 for the current year. The stock is currently trading at a forward P/E of 19x. We believe that despite exceptional YoY performance, the stock is still undervalued and has significant upside. According to consensus estimates, the company will show a 10% revenue growth in both 2013 and 2014. Using historical P/E, we have established a price target of $93 for June 13. This is a 25% upside on current stock price of $74.4 and therefore we are bullish on OSIS.