The technology industry is growing rapidly with the widespread adoption of cloud computing, cybersecurity solutions, and other digital technologies. Amid this backdrop, investors may consider buying fundamentally strong tech stocks Canon Inc. (CAJPY), Dropbox, Inc. (DBX), and Bel Fuse Inc. (BELFB).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the tech industry is well-positioned to grow.
The continuous innovations in AI, the Internet of Things (IoT), and the rising investments in digital transformation are shaping the tech industry’s long-term prospects. Growth is being driven by increased remote work, software advancements, and hardware innovations. Gartner forecasts global IT spending to hit $4.69 trillion in 2023, a 3.5% year-over-year increase.
The pandemic has heightened demand, especially for advanced hardware solutions that support remote work and cybersecurity. Investing in advanced hardware and equipment leads to enhanced productivity and efficiency for companies. The spending on devices is expected to decrease by 10% in 2023 but is projected to grow by 4.8% year-over-year to $722.47 billion in the following year.
Moreover, the ongoing digital transformation boosts demand for IT services in implementing and optimizing digital technologies, cloud computing, and data analytics. The global IT services market is expected to reach $1.24 trillion this year. It is expected to grow at a CAGR of 7.4%, reaching $1.77 trillion by 2028.
Additionally, the proliferation of technology across various sectors like healthcare, automotive, industrial applications, and others has boosted the demand for electronic components. With devices becoming smarter, automated, and interconnected, the need for high-quality components is growing fast. The global electronic components market is expected to grow at a CAGR of 6.8% to reach $368.40 billion by 2032.
Considering these conducive trends, let’s analyze the fundamental aspects of the above-mentioned tech stocks.
Canon Inc. (CAJPY)
Headquartered in Tokyo, Japan, CAJPY manufactures and sells office multifunction devices (MFDs), laser and inkjet printers, cameras, medical equipment, and lithography equipment worldwide. The company operates through a Printing Business Unit, an Imaging Business Unit, a Medical Business Unit, an Industrial Business Unit, and other segments.
On November 28, 2023, CAJPY and Cleveland Clinic partnered to develop innovative medical imaging and healthcare IT technologies for improved diagnosis and patient outcomes. They aim to establish a comprehensive imaging research center in Cleveland's Fairfax neighborhood, focusing on cardiology, neurology, and musculoskeletal medicine, fostering local and global research collaborations.
Toshio Takiguchi, Senior Managing Executive Officer, Head of Medical Group at CAJPY, said, “Under Canon’s ‘Made for Life’ philosophy, we are dedicated to improving the wellbeing of patients everywhere through our innovations in technology. This collaboration with Cleveland Clinic allows us to use our mutual strengths to enable a future that delivers on this promise.”
In terms of the trailing-12-month net income margin, CAJPY’s 6.44% is 174.5% higher than the 2.35% industry average. Likewise, its 8.93% trailing-12-month EBIT margin is 81.4% higher than the 4.92% industry average. Additionally, its 8.38% trailing-12-month Return on Common Equity is 642.5% higher than the 1.13% industry average.
CAJPY’s net sales for the third quarter ended September 30, 2023, increased 2.9% year-over-year to ¥1.03 trillion ($7.22 billion). Its operating profit rose 1.5% year-over-year to ¥82.62 billion ($579.26 million). The company’s net income attributable to CAJPY increased 14.8% year-over-year to ¥62.13 billion ($435.60 million). In addition, its EPS came in at ¥62.62, representing an increase of 18.4% year-over-year.
Street expects CAJPY’s revenue for the fiscal year ending December 31, 2023, to increase 115.8% year-over-year to $28.78 billion. Over the past nine months, the stock has gained 17% to close the last trading session at $25.20.
CAJPY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Momentum, Stability, and Quality. Within the A-rated Technology - Hardware industry, it is ranked #4 out of 36 stocks. In total, we rate CAJPY on eight different levels. Beyond what we stated above, we also have given CAJPY grades for Growth and Sentiment. Get all the CAJPY ratings here.
Dropbox, Inc. (DBX)
DBX provides a content collaboration platform worldwide. The company’s platform allows individuals, families, teams, and organizations to collaborate and sign up for free through its website or app, as well as upgrade to a paid subscription plan for premium features.
On November 17, 2023, DBX and NVIDIA (NVDA) partnered to boost knowledge work for millions of DBX users with personalized AI. DBX will use NVIDIA's AI foundry, including Foundation Models and accelerated computing, to enhance content and workflows. The collaboration focuses on customizing large language models for personalized information, prioritizing security, privacy, and transparency.
Drew Houston, Co-founder and CEO at DBX, said, “AI has the potential to offload routine tasks, unlock our creativity, and help us do more meaningful work. We’re excited to partner with NVIDIA and leverage their technology in new ways to deliver more personalized, AI-powered experiences to our customers.”
On October 10, DBX announced a range of updates and innovations, including AI-powered products, a web revamp, a 'Dropbox Studio' video tool, and new workflow plans. Aug X Labs and LlamaIndex are the first partners of 'Dropbox Ventures' for AI startups.
These changes aim to enhance knowledge work, reduce distractions, and boost productivity with generative AI. DBX also introduced subscription plans—'Dropbox Essentials', Business, and Business Plus—for efficient content management. Subscription plans will help the company boost its revenues.
In terms of the trailing-12-month levered FCF margin, DBX’s 30.52% is 257.8% higher than the 8.53% industry average. Likewise, its 14.48% trailing-12-month EBIT margin is 194.1% higher than the 4.92% industry average. Additionally, its 12.39% trailing-12-month Return on Total Capital is 359.7% higher than the 2.70% industry average.
For the third quarter that ended September 30, 2023, DBX’s revenue increased 7.1% year-over-year to $633 million. Likewise, the company’s non-GAAP income from operations rose 21.9% from the prior year’s quarter to $227.60 million.
In addition, the company’s non-GAAP net income and non-GAAP net income per share increased 26.8% and 30.2% year-over-year to $194.10 million and $0.56, respectively.
Analysts expect DBX’s EPS and revenue for the quarter ending December 31, 2023, to increase 20.9% and 5.4% year-over-year to $0.48 and $631.03 million, respectively. It surpassed Street EPS estimates in each of the four trailing quarters. Over the past nine months, the stock has gained 49.6% to close the last trading session at $29.94.
It’s no surprise that DBX has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value. Within the Technology - Services industry, it is ranked #5 out of 77 stocks. To see DBX’s Growth, Momentum, Stability, and Sentiment ratings, click here.
Bel Fuse Inc. (BELFB)
BELFB designs, manufactures, markets, and sells products that are used in the networking, telecommunications, computing, general industrial, high-speed data transmission, military, commercial aerospace, transportation, and e-mobility industries in and internationally.
In terms of the trailing-12-month EBITDA margin, BELFB’s 16.11% is 71.1% higher than the 9.42% industry average. Likewise, its 14.14% trailing-12-month EBIT margin is 187.1% higher than the 4.92% industry average. Additionally, its 1.20x trailing-12-month asset turnover ratio is 95.6% higher than the 0.62x industry average.
For the nine months ended September 30, 2023, BELFB’s non-GAAP adjusted net sales increased 4.2% year-over-year to $485.38 million. The company’s non-GAAP net earnings and class A EPS came in at $65.34 million and $4.89, up 61.6% and 58.3% over the prior-year quarter, respectively. In addition, adjusted EBITDA rose 49.2% year-over-year to $86.58 million.
Analysts expect BELFB’s EPS for the quarter ending December 31, 2023, to increase 4.4% year-over-year to $1.41. Its revenue for the fiscal year 2024 is expected to increase 0.1% year-over-year to $651.20 million. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 93.6% to close the last trading session at $62.97.
BELFB’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 #4 out of 39 stocks in the B-rated Technology – Electronics industry. It has an A grade for Value and Sentiment and a B for Quality. Click here to see BELFB’s Growth, Momentum, and Stability ratings.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
CAJPY shares were trading at $25.72 per share on Tuesday afternoon, up $0.52 (+2.04%). Year-to-date, CAJPY has gained 20.46%, versus a 25.25% 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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