While the macro headwinds have hard-hit the technology sector, its long-term prospects look impressive. Therefore, fundamentally sound tech stocks Gartner (IT), Ricoh Company (RICOY), and Jabil (JBL) could be worth buying now. Keep reading.
The tech sector witnessed a huge selloff amid the Fed’s consecutive rate hikes. Moreover, layoffs have increased in the industry as recession fears are widespread. However, given the solid long-term prospects of the industry, I am bullish on fundamentally sound tech stocks Gartner, Inc. (IT), Ricoh Company, Ltd. (RICOY), and Jabil Inc. (JBL).
The industry is evolving rapidly with advanced technologies like artificial intelligence (AI). The artificial intelligence chip industry is expanding due to increased demand for smart homes and smart cities.
Companies are developing new technologies and conducting research and development to expedite AI training and inference and boost efficiency. The artificial intelligence chip market is expected to grow at a CAGR of 39.8% until 2027.
Gartner predicts spending to reach $4.5 trillion in 2023, a 2.4% rise from previous years.
John-David Lovelock, Distinguished VP Analyst at Gartner, said, “Consumers and enterprises are facing very different economic realities. While inflation is devastating consumer markets, contributing to layoffs at B2C companies, enterprises continue to increase spending on digital business initiatives despite the world economic slowdown.”
Moreover, the global market for tech support services is expected to grow at a 5.3% CAGR, reaching $111 billion by 2033.
Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 8.1% returns over the past three months.
So, IT, RICOY, and JBL could be worth owning now.
Gartner, Inc. (IT)
IT operates as a global research and advisory company. The firm operates through its three broad segments: Research; Conferences; and Consulting.
IT’s gross profit margin of 69.07% is 40.4% higher than the 49.19% industry average, while its EBITDA margin of 24.01% is 114% higher than the industry average of 11.22%.
For the fourth quarter of the fiscal year 2022 ended December 31, IT’s revenues increased 15.2% year-over-year to $1.18 billion. During the same period, the company’s adjusted EBITDA increased 37.1% year-over-year to $421 million, while the adjusted net income increased 18.3% year-over-year to $297 million. The company’s adjusted EPS came in at $3.70, up 23.7% year-over-year.
IT’s revenue is expected to increase by 10.8% year-over-year to $6.42 billion in 2024. Its EPS is expected to grow 16% year-over-year to $10.94 in 2024. It surpassed EPS estimates in all four trailing quarters. IT’s shares have gained 25.2% over past nine months to close the last trading session at $334.60.
IT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
IT has an A grade for Quality. Within the A-rated Outsourcing – Tech Services industry, it is ranked #3 out of 9 stocks. To see additional POWR Ratings for Growth, Value, Stability, Sentiment, and Momentum for IT, click here.
Ricoh Company, Ltd. (RICOY)
Headquartered in Tokyo, Japan, RICOY is engaged in integrated domestic and overseas manufacturing services. The company’s segments include Imaging & Solutions; Industrial Products; and Other.
RICOY has paid dividends for nine consecutive years. Over the last three years, RICOY’s dividend payouts have grown at 22.9% CAGR. While RICOY’s four-year average dividend yield is 2.1%, its current dividend translates to a 3.14% yield.
In terms of the trailing-12-month asset turnover ratio, RICOY’s 1.06% is 73.9% higher than the 0.61% industry average.
RICOY’s sales increased 23.3% year-over-year to ¥555 billion ($4.07 billion) for the third quarter that ended December 31, 2023. Also, its operating income came in at ¥16.10 billion ($120 million), up 27.8% year-over-year. Its profit and EPS came in at ¥12.50 billion ($91.88 million) and ¥20.56, up 4.2% and 11.6% year-over-year.
The consensus revenue estimate of $16.61 billion for the fiscal year 2024 indicates a 4.5% increase year-over-year. Its EPS is expected to grow 13% year-over-year to $0.78 in 2024. Over the past six months, the stock has gained 6.3% to close the last trading session at $7.93.
RICOY’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It has an A grade for Growth and a B for Value and Stability.
It is ranked first among 42 stocks in the Technology – Hardware industry. For additional POWR Ratings for Sentiment, Momentum, and Quality for RICOY, click here.
Jabil Inc. (JBL)
JBL offers products and services for manufacturing all over the world. The company operates in two segments, Electronics Manufacturing Services and Diversified Manufacturing Services.
JBL has paid dividends for 16 consecutive years. While JBL’s four-year average dividend yield is 0.75%, its current dividend translates to a 0.38% yield.
JBL’s trailing-12-month ROCE of 41.31% is 767% higher than the 4.75% industry average. Its trailing-12-month ROTA of 4.77% is 209.7% higher than the 1.54% industry average.
JBL’s net revenues came in at $9.64 billion for the fiscal first quarter that ended November 30, 2022, up 12.5% year-over-year. Its gross profit increased 10.1% year-over-year to $743 million. Also, its operating income increased 3.4% year-over-year to $362 million.
Analysts expect JBL’s revenue to increase 3.1% year-over-year to $34.51 billion in 2023. Its EPS is estimated to rise 9.5% year-over-year to $8.38 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 59.8% to close the last trading session at $84.04.
JBL’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which indicates a Buy in our proprietary rating system. It also has an A grade for Momentum and B for Value, Sentiment, and Quality.
JBL is ranked #9 out of 80 stocks in the Technology – Services industry. Click here for the additional POWR Ratings for Stability and Growth for JBL.
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IT shares were trading at $337.63 per share on Wednesday morning, up $3.03 (+0.91%). Year-to-date, IT has gained 0.44%, versus a 4.35% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master’s degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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