The rising reliance on technology and its increasing reach and influence across various end-use sectors significantly boosts the demand for tech products and services. So, while investors could consider investing in robust tech stocks Dell Technologies Inc. (DELL) and Dropbox, Inc. (DBX), I think it could be best to wait for a better entry point in Motorola Solutions, Inc. (MSI).
The US tech industry is a global powerhouse, driving innovation, economic growth, and job creation. The tech industry also plays a pivotal role in shaping societal trends, from the way people communicate and work to how businesses operate. Global IT spending is anticipated to reach $5.10 trillion this year, marking an 8% increase from the preceding year, as per the latest projections by Gartner.
Despite macroeconomic challenges in the last year, the global digital transformation continued unabated. Moreover, there is an anticipated substantial increase in demand for innovative tech solutions in the current year and beyond, with key spending areas identified in communications services, software, devices, data center systems, and IT services.
While the robust economic growth in the United States significantly propels the IT services market, the increasing urbanization of the developing countries around the globe also boosts the industry. Revenue in the U.S. IT services market is expected to hit $495.30 billion this year and further grow at a CAGR of 6.2% until 2028.
Talking about the tech hardware industry, the rising adoption of digital transformation and trends amplifies the demand for advanced hardware. The sector is also driven by the widespread adoption of cloud services, artificial intelligence (AI), blockchain, the Internet of Things (IoT), and machine learning.
The market for IT hardware is expected to grow at a CAGR of 7.9% to reach $191.03 billion by 2029.
Given the encouraging trends, now, let's examine the core fundamentals of the three mentioned technology stock picks.
Stocks to Buy:
Dell Technologies Inc. (DELL)
DELL designs, develops, manufactures, markets, sells, and supports various comprehensive and integrated solutions, products, and services in the Americas, Europe, the Middle East, Asia, and internationally. The company operates through two segments, Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG).
DELL’s trailing-12-month net income margin of 2.92% is 24% higher than the industry average of 2.36%, and its trailing-12-month EBIT margin of 5.39% is 9.5% higher than the industry average of 4.92%.
On December 19, DELL announced pricing terms for its cash tender offers, expecting to accept $350 million in 3.450% Senior Notes due 2051 and $150 million in 8.350% Senior Notes due 2046.
In the same month, DELL declared a quarterly cash dividend of $0.37 per common share, which will be payable on February 2, 2024. Its annual dividend of $1.48 yields 1.76% on the current market price, higher than the four-year average of 0.95%.
DELL reported a total net revenue of $22.25 billion for the fiscal third quarter ending November 3, 2023, comprising $16.23 billion in product revenue and $6.02 billion in service revenue. Non-GAAP operating expenses decreased by 5% year-over-year to $3.31 billion. The company's non-GAAP net income was $1.39 billion, equating to $1.88 per share.
Analysts expect DELL’s revenue and EPS to rise 3.6% and 10.6% year-over-year to $21.67 billion and $1.72, respectively in the fiscal first quarter ending April 2024. DELL has consistently surpassed consensus EPS estimates in the past four quarters, demonstrating strong performance.
Shares of DELL have returned 105.5% over the past year and 30.6% over the past three months to close the last trading session at $84.22.
DELL’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Sentiment and a B for Growth, Value, and Momentum. Within the A-rated Technology – Hardware industry, it is ranked #7 out of 36 stocks.
Beyond what is stated above, we’ve also rated DELL for Quality and Stability. Get all DELL 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.
DBX’s trailing-12-month net income margin of 22.50% is 984.4% higher than the industry average of 2.07%. The stock’s trailing-12-month levered FCF margin of 30.52% is 242.4% higher than the industry average of 8.92%.
During the fiscal third quarter, which ended September 30, 2023, DBX’s revenue increased 7.1% year-over-year to $633 million. Its gross profit improved 6.7% from the year-ago quarter to $513.40 million. The company’s net income and net income per share rose 37.1% and 43.5% from the prior-year quarter to $114.10 million and $0.33, respectively.
Moreover, its income from operations came in at $130.70 million, up 46.4% year-over-year.
DBX’s EPS and revenue are expected to rise 20.9% and 5.5% year-over-year to $0.48 and $631.68 million in the fiscal fourth quarter ended December 2023. It has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 53.7% over the past nine months to close the last trading session at $32.10. It soared 21.7% over the past three months.
DBX’s POWR Ratings reflect this bright outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value. In the 75-stock Technology – Services industry, it is ranked #5.
Click here to see DBX ratings for Growth, Stability, Momentum, and Sentiment.
Stock to Hold:
Motorola Solutions, Inc. (MSI)
MSI provides public safety and enterprise security solutions in the United States, the United Kingdom, Canada, and internationally. The company operates in two segments: Products and Systems Integration and Software and Services.
MSI’s trailing-12-month gross profit margin, MSI’s 49.54% is 1,48z% higher than the 48.82% industry average. The stock’s 0.82x trailing-12-month asset turnover ratio is 32.6% higher than the industry average of 0.62x.
In December, MSI acquired IPVideo, known for the HALO Smart Sensor, a versatile device for real-time health and safety threats, including vape detection, air quality monitoring, and gunshot detection. This move underscores MSI's dedication to improving safety and security through cost-effective, privacy-conscious sensor solutions.
The company pays an annual dividend of $3.92, yielding 1.20% on the prevailing price level. It has raised its dividend payouts at a CAGR of 11.2% over the past three years.
MSI’s revenue increased 7.7% year-over-year to $2.56 billion in the fiscal third quarter ended September 30, 2023. The company’s non-GAAP operating earnings increased 9.6% year-over-year to $741 million, and non-GAAP EPS came in at $3.19, representing an increase of 6.3% year-over-year.
The company has revised its revenue outlook to $9.93–$9.945 billion (previously $9.875–$9.9 billion) and adjusted EPS to $11.65–$11.70 per share (previously $11.40–$11.48 per share).
Street anticipates MSI's EPS and revenue to edge up marginally and 4.1% year-over-year, hitting $3.63 and $2.82 billion in the fiscal fourth quarter ended December 2024. Impressively, MSI has beaten consensus EPS and revenue estimates in each of the past four quarters.
While the stock has soared 26.8% over the past year, it plummeted marginally intraday to close the last trading session at $326.10.
MSI’s POWR Ratings are consistent with this uncertain outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.
It has a C grade for Momentum and Stability. Within the 46-stock Technology - Communication/Networking industry, it is ranked #13.
Access MSI’s Value, Growth, Sentiment, and Quality ratings here.
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.
DELL shares were trading at $84.04 per share on Monday morning, down $0.18 (-0.21%). Year-to-date, DELL has gained 10.35%, versus a 2.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
Are These Popular Tech Stocks Worth Buying? StockNews.com
