Despite macroeconomic challenges, the tech hardware industry is set for solid growth due to widespread tech adoption, increased investments in digitization, and the embracement of new technologies.
However, not all tech stocks are worth considering right now. When it comes to the tech giant Apple, Inc. (AAPL), I think waiting for a better entry point could be wise because of its weakening financials and high valuation. Instead, Lenovo Group Limited (LNVGY), Pitney Bowes Inc. (PBI), and Sharp Corporation (SHCAY) could be solid buys now to capitalize on the favorable industry trends.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the tech hardware industry is well-positioned to grow and why this is not the right time to buy AAPL.
Businesses are adopting technology to engage customers, innovate, and make operations efficient, necessitating smart tech hardware. Advanced hardware complements software, ensuring smooth operations and driving growth through rapid digital transformation and emerging tech adoption.
Investing in advanced hardware and equipment by enterprises leads to enhanced productivity and efficiency. Gartner predicts global IT spending will reach $4.69 trillion in 2023, reflecting a 3.5% year-over-year increase. Spending on devices is anticipated to decrease by 10% over the prior-year quarter in 2023, but it is projected to grow by 4.8% year-over-year to $722.47 billion next year.
The Internet of Things (IoT) technology is actively contributing to the digital transformation of businesses, resulting in a substantial increase in the demand for interconnected hardware, including sensors, processors, and wireless solutions. According to Mordor Intelligence, the market for IoT devices is projected to grow at a CAGR of 23.3%, reaching $336.64 billion by 2028.
Tech giant AAPL beat the consensus EPS and revenue estimates in the last reported quarter. However, its fourth-quarter (ended September 30, 2023) revenue decreased by 1%, totaling $89.50 billion compared to the same period last year.
However, AAPL recorded $22.31 billion in services revenue, surpassing analyst expectations and marking a 16% increase over the previous year. Its iPhone revenue set the September quarter record, while Services revenue was at a record high. Also, AAPL’s stock has gained 45.8% year-to-date to close the last trading session at $189.37.
On the other hand, its Product revenue dropped by 5.3% year-over-year to $67.18 billion. Mac and iPad sales were down 33.8% and 10.2% year-over-year to $7.61 billion and $6.44 billion, respectively. Also, AAPL’s Wearables, Home, and Accessories sales decreased by 3.4% year-over-year to $9.32 billion.
Despite beating the headline estimates in the last reported quarter, AAPL has cautioned investors against anticipating revenue growth in the December quarter.
While the company’s business is relatively weak, the stock trades at an expensive valuation. In terms of forward EV/EBITDA, AAPL’s 22.06x is 51.9% higher than the 14.52x industry average. Likewise, its 7.32x forward EV/Sales is 175.5% higher than the 2.66x industry average. Furthermore, its 28.88x forward non-GAAP P/E is 29.6% higher than the 22.29x industry average.
Moreover, although iPhone sales were solid in the last reported quarter, the slowdown in the smartphone market could affect its revenues in the near term.
Considering this backdrop, let’s analyze the fundamentals of the three better Technology - Hardware stocks, beginning with the third choice.
Stock #3: Lenovo Group Limited (LNVGY)
Headquartered in Quarry Bay, Hong Kong, LNVGY is an investment holding company that develops, manufactures, and markets technology products and services. It operates through the segments of Intelligent Devices Group, Infrastructure Solutions Group, and Solutions and Services Group.
In terms of the trailing-12-month Return on Common Equity, LNVGY’s 20.56% is significantly higher than the 0.99% industry average. Likewise, its 2.57% trailing-12-month Return on Total Assets is significantly higher than the industry average of 0.15%. Furthermore, the stock’s 1.41x trailing-12-month asset turnover ratio is 127.8% higher than the industry average of 0.62x.
LNVGY’s group revenue for the second quarter that ended September 30, 2023, came in at $14.41 billion. Likewise, the company’s net income attributable to equity holders and earnings per share came in at $249 million and $1.99, respectively. Its gross profit margin rose 0.7 percentage points year-over-year to 17.5%.
For the quarter ending March 31, 2024, LNVGY’s revenue is expected to increase 5% year-over-year to $13.27 billion. Its EPS for the fiscal year ending March 31, 2025, is expected to increase 53.9% year-over-year to $2.36. The stock has gained 51% year-to-date to close the last trading session at $24.44.
LNVGY’s positive outlook is reflected in its POWR Ratings. It 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 Value and a B for Momentum. Within the B-rated Technology - Hardware industry, it is ranked #18 out of 37 stocks. To see LNVGY’s Growth, Stability, Sentiment, and Quality ratings, click here.
Stock #2: Pitney Bowes Inc. (PBI)
PBI is a shipping and mailing company that provides technology, logistics, and financial services to small and medium-sized businesses, large enterprises, retailers, and government clients in the United States, Canada, and internationally. It operates through Global E-commerce, Presort Services, and Sending Technology Solutions (SendTech Solutions) segments.
On November 8, 2023, PBI announced the strengthening of its domestic parcel network and services through automated e-commerce hubs, expanded regional delivery, and new robotics solutions. These initiatives aim to enhance efficiency, on-time deliveries, and consumer returns processing for e-commerce brands and retailers, resulting in a 38% year-over-year growth in Domestic Parcel volumes in Q3.
In terms of the trailing-12-month gross profit margin, PBI’s 31.02% is 2.2% higher than the 30.35% industry average. Likewise, its 3.18% trailing-12-month Capex/Sales is 6.8% higher than the 2.97% industry average.
PBI’s total revenue for the third quarter ended September 30, 2023, came in at $783.75 million. Its net cash from operating activities stood at $25.31 million, compared to a negative net cash from operating activities of $36.47 million in the year-ago quarter. In addition, its adjusted EBITDA came in at $83.73 million, representing an increase of 8.3% year-over-year.
For the quarter ending March 31, 2024, PBI’s EPS is expected to increase 600% year-over-year to $0.05. Over the past month, PBI has gained 35% to close the last trading session at $4.13.
It’s no surprise that PBI has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth and Value. Within the same industry, it is ranked #14. In total, we rate PBI on eight different levels. Beyond what we stated above, we also have given PBI grades for Momentum, Stability, Sentiment, and Quality. Get all the PBI ratings here.
Stock #1: Sharp Corporation (SHCAY)
Headquartered in Sakai, Japan, SHCAY manufactures and sells telecommunication equipment, electric and electronic application equipment, and electronic components in Japan, China, and internationally. It operates through five segments: Smart Life, 8K Ecosystem, ICT, Display Device, and Electronic Device.
In terms of the trailing-12-month asset turnover ratio, SHCAY’s 1.20x is 20.8% higher than the 0.99x industry average.
For the six months that ended September 30, 2023, SHCAY’s net sales came in at ¥1.16 trillion ($7.88 billion). The company’s comprehensive income attributable to owners of parent rose 37.9% year-over-year to ¥63.92 billion ($434 million). Furthermore, as of September 30, 2023, the company’s total assets amounted to ¥1.85 trillion ($12.56 billion), up from ¥1.77 trillion ($12.02 billion) for the fiscal year ended March 31, 2023.
Analysts expect SHCAY’s revenue for the fiscal year ending March 31, 2024, to increase 306% year-over-year to $16.76 billion. Over the past six months, the stock has gained 7.6% to close the last trading session at $1.51.
SHCAY’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #13 in the Technology – Hardware industry. It has an A grade for Value and a B for Growth. Click here to see SHCAY’s Momentum, Stability, Sentiment, and Quality ratings.
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LNVGY shares were trading at $24.59 per share on Thursday afternoon, up $0.15 (+0.61%). Year-to-date, LNVGY has gained 58.38%, versus a 19.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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