Despite facing several macroeconomic headwinds over the past year, the technology industry is well-positioned for significant long-term growth, driven by rapid digital transformation across several industries and growing tech spending worldwide.
As the industry's prospects shine bright, fundamentally strong tech stocks Brother Industries, Ltd. (BRTHY), Vishay Intertechnology, Inc. (VSH), and Encore Wire Corporation (WIRE) could be wise additions to your portfolio. These stocks are well-positioned to leverage the industry’s growth potential and are currently trading at a discount.
Before delving into the fundamentals of these stocks, let’s discuss the factors shaping the tech industry’s future.
Companies are rapidly modifying their business strategies to stay competitive and address consumer demands by incorporating cutting-edge technologies into their business operations. Game-changing innovations such as 5G, AI, and cloud computing are hitting tipping points for mass adoption, boosting the tech industry’s prospects.
That said, cloud infrastructure services witnessed a significant surge, with total spending reaching $247.10 billion in 2022, marking a 29% growth year-over-year. This year, similar upward trends are projected, with an estimated 23% increase in spending on cloud infrastructure services.
Moreover, global spending on AI is expected to reach $154 billion this year, marking a notable 26.9% increase from the previous year, as per the International Data Corporation (IDC). Other technological advancements such as quantum computing, blockchain, AR & VR, and IoT are also significantly expanding the industry’s horizons.
Gartner projects global IT spending to reach $4.60 trillion this year, registering a 5.5% increase from the previous year. Meanwhile, according to ReportLinker, the global information technology market is expected to grow at a 7.9% CAGR, reaching $12 trillion by 2027.
Tech stocks continue to drive stock market gains, buoyed by strong corporate earnings despite GDP growth falling short of expectations. The tech-heavy NASDAQ has gained 31.8% year-to-date, while Wall Street's enthusiasm for AI has led to a 15.3% surge in the S&P 500 this year.
The Technology Select Sector SPDR Fund ETF’s (XLK) 35.9% returns over the past six months further demonstrate investors’ interest in tech stocks.
Against the backdrop, it could be wise to load up on discounted tech stocks BRTHY, VSH, and WIRE, which could generate solid returns.
Let’s take a closer look at the fundamentals of these stocks.
Brother Industries, Ltd. (BRTHY)
Headquartered in Nagoya, Japan, BRTHY manufactures and sells communication and printing equipment. Its segments include Printing & Solutions; Machinery; Domino; Nissei; Personal & Home; and Network & Contents. The company’s product line comprises gear motors, karaoke systems, sewing machines, and coding apparatus.
On May 22, BRTHY announced that its subsidiary, BROTHER MACHINERY INDIA PRIVATE LTD., established a second technology center with a machine tool showroom in Gurugram, Haryana State, India. The center is expected to enhance service support in northern India and showcase BRTHY’s machine tools to customers.
Through this initiative, BRTHY positions itself to capitalize on the anticipated increase in demand for machine tools, specifically in the thriving automotive and motorcycle parts industry of the rapidly growing Indian economy. This should allow the company to capitalize on market opportunities and enhance profitability.
Also, on February 7, BRTHY unveiled its plans to build a machine tool production plant near Bengaluru, India, worth approximately ¥2 billion ($14.09 million). With India’s growing population and economy, particularly in the automotive and motorcycle sectors, BRTHY can gain significant advantages by leveraging this market potential.
In terms of forward EV/Sales, BRTHY is trading at 0.56x, 81.3% lower than the industry average of 2.98x. Its forward EV/EBITDA multiple of 4.10 is 72.1% lower than the industry average of 14.67. In addition, the stock’s forward Price/Sales of 0.67x is 76.5% lower than the industry average of 2.84x.
For the fiscal year that ended March 31, 2023, BRTHY’s revenue increased 14.7% year-over-year to ¥815.27 billion ($5.75 billion). Its gross profit rose 4% from the year-ago value to ¥319.59 billion ($2.25 billion).
In addition, as of March 31, 2023, the company’s current assets came in at ¥511.75 billion ($3.61 billion), compared to ¥476.75 billion ($3.36 billion) as of March 31, 2022.
The consensus revenue estimate of $5.90 billion for the fiscal year (ending March 2024) reflects a 72.2% year-over-year improvement. Likewise, the consensus revenue estimate of $6.02 billion for the fiscal year 2025 indicates a 2% rise year-over-year. Moreover, the company topped the consensus revenue estimates in all four trailing quarters, which is impressive.
Shares of BRTHY have gained 6.1% over the past six months to close the last trading session at $31.33.
BRTHY’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
BRTHY has an A grade for Stability and a B for Value and Quality. It has ranked #6 in the 41-stock Technology - Electronics industry.
In addition to the POWR Ratings I’ve just highlighted, you can see BRTHY’s ratings for Growth, Momentum, and Sentiment here.
Vishay Intertechnology, Inc. (VSH)
VSH manufactures and sells semiconductors and electronic components. Its segments include Metal Oxide Semiconductor Field Effect Transistors (MOSFETs); Diodes; Optoelectronic Components; Resistors; Inductors; and Capacitors. The company caters to the industrial, automotive, telecommunications, military, and aerospace sectors.
On June 7, VSH introduced the VOMDA1271, an automotive-grade photovoltaic MOSFET driver featuring an integrated turn-off circuit in a compact SOP-4 package. This first-of-its-kind innovation would enhance VSH semiconductors’ market position through superior performance, high switching speeds, and increased design flexibility.
On May 30, VSH revealed a novel thick film power resistor incorporating an AEC-Q200-tested NTC thermistor. The integration streamlines designs, saves board space, and facilitates efficient production installation. Such innovative product launches could expand VSH’s portfolio and attract a broader customer base.
In terms of forward non-GAAP P/E, VSH is trading at 10.35x, 54.3% lower than the industry average of 22.66x. Additionally, the stock’s forward EV/Sales and forward EV/EBITDA of 1.01x and 5.34x are 66.1% and 63.6% lower than the industry averages of 2.98x and 14.67x, respectively.
During the first quarter that ended April 1, 2023, VSH’s net revenues increased 2% year-over-year to $871.05 million. Its adjusted EBITDA grew 10.3% from the year-ago value to $199.25 million. Also, the company’s adjusted net earnings rose 7.9% from the prior year’s period to $111.78 million, and its adjusted EPS grew 11.3% year-over-year to $0.79.
VSH’s revenue is expected to grow marginally year-over-year to $3.52 billion for the fiscal year ending December 2023. The consensus revenue estimate of $3.56 billion for the fiscal year 2024 reflects a 1.2% rise year-over-year. The stock has gained 57.7% over the past year to close the last trading session at $27.78.
VSH’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
VSH has an A grade for Value and Momentum. It is ranked #4 out of 41 stocks within the Technology – Electronics industry.
Click here to access additional VSH ratings (Growth, Quality, Sentiment, and Stability).
Encore Wire Corporation (WIRE)
WIRE manufactures electrical wires and cables. Its product line includes NM-B, UF-B, Photovoltaic, URD, tray cable, metal-clad, armored cable, and more. The company sells its products through independent representatives to wholesale distributors. It serves the residential, commercial, industrial, and renewable energy sectors.
WIRE's first-quarter solid results mark its eighth consecutive quarter of high margins. Daniel L. Jones, Chairman, President, and CEO of WIRE, said, “I continue to believe that our operational agility, speed to market, and deep supplier relationships remain competitive advantages in serving our customers’ evolving needs.”
He added, “Capital spending in 2023 through 2025 will further expand vertical integration in our manufacturing processes to reduce costs as well as modernize select wire manufacturing facilities to increase capacity and efficiency and improve our position as a sustainable and environmentally responsible company.”
In terms of forward non-GAAP P/E, WIRE is trading at 7.49x, 56.6% lower than the industry average of 17.26x. Also, the stock’s forward EV/Sales and forward EV/EBITDA of 0.86x and 4.41x are 49.3% and 59.8% lower than the respective industry averages of 1.69x and 10.98x.
For the first quarter that ended March 31, 2023, WIRE’s net interest and other income significantly increased year-over-year to $9.17 million. Its cash inflow from operating activities grew 7.8% year-over-year to $126.94 million.
Furthermore, as of March 31, 2023, the company’s current liabilities came in at $129.17 million, compared to $144.16 million as of December 31, 2022.
Analysts expect WIRE’s revenue to increase 2.2% year-over-year to $2.90 billion for the fiscal year ending December 2024. Shares of WIRE have gained 24.7% over the past six months and 58.7% over the past year to close the last trading session at $174.07.
WIRE’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
WIRE has an A grade for Value and a B for Quality. It has ranked #7 out of 41 stocks within the same industry.
Click here to access additional WIRE ratings for Momentum, Growth, Stability, and Sentiment.
What To Do Next?
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BRTHY shares were trading at $31.33 per share on Monday afternoon, up $0.28 (+0.89%). Year-to-date, BRTHY has gained 6.39%, versus a 15.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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