Although the past few months have been challenging for the tech sector with the rising inflation rate and mass layoffs, the industry is equipped to brave most market challenges thanks to a continuing digital transformation across industries and consistent product and service innovation.
So, it could be wise to look at the top-rated tech stocks TDK Corporation (TTDKY), Vtech Holdings Limited (VTKLY), and Spirent Communications plc (SPMYY), with solid growth and stability, which seem well-positioned to deliver steady returns.
Let’s discuss why the tech industry is well-positioned for growth.
This year started on a bad note for the tech space as several companies announced sweeping job cuts due to a sluggish global economy and weak revenue growth. According to data provided by Layoffs.fyi, 596 technology companies have laid off 171,308 employees this year, compared to 164,411 layoffs last year.
Despite continued global economic turbulence, global IT spending is projected to reach $4.6 trillion in 2023, an increase of 5.5% from last year, according to the latest forecast by Gartner, Inc. (IT).
Spending on new technology such as cloud computing, software, cyber security, artificial intelligence (AI), the Internet of Things (IoT), and others is expected to enhance further as more companies use these advanced technologies for conducting daily business.
One of the distinctive characteristics of the technology sector is constant innovation, which necessitates significant investments in research and development. This industry plays a crucial role in facilitating the growth of enterprises in a digital world.
Furthermore, the development of blockchain and quantum computing should create new opportunities and disrupt existing industries, promoting growth and progress in the technology sector in both emerging and established markets. The information technology market is expected to grow to $12 trillion in 2027, growing at a CAGR of 7.9%.
Given this backdrop, let’s evaluate the fundamentals of the featured stocks in detail:
TDK Corporation (TTDKY)
Headquartered in Tokyo, Japan, TTDKY is primarily engaged in the manufacture and sale of electronic components, sensor application products, magnetic application products, and energy application products. The company operates through four segments: Passive Components; Sensor Application Products; Magnetic Application Products; Energy Application Products; and other segments.
The stock has a 0.92 beta, indicating comparative stability than the broader market.
On April 17, TTDKY announced that subsidiary TDK Ventures Inc. has invested in Novalith clean lithium-extraction technology. This investment is made to further contribute to its environmental and energy-transformation missions.
Novalith’s technology is key in the framework for clean, effective lithium-ion battery production to support global electrification, especially as the demand for high-quality lithium for batteries is expected to surge in the near future.
On March 27, TTDKY invested in pH7 Technologies for the clean extraction and recycling of critical metals. PH7 Technologies has developed a ground-breaking process that enables the extraction of crucial metal and mineral resources with minimal environmental impact, thus facilitating the widespread adoption of electric-powered technology.
This revolutionary proprietary process has the potential to transform the metal industry by significantly reducing its carbon footprint while also supporting the growing demand for sustainable metal supply.
This investment demonstrates the company’s dedication to backing inventive solutions that contribute to the worldwide shift towards sustainable energy, particularly those that aim to revolutionize the supply chain of metals.
TTDKY’s net sales increased 17.5% year-over-year for the third quarter that ended on December 31, 2022, to ¥586.97 billion ($4.37 billion). Its gross profit rose 9.5% from the year-ago value to ¥172.35 billion ($1.28 billion), while its operating profit grew 14.5% from the prior-year quarter to ¥68.37 billion ($509.43 million).
Also, the company’s net profit for the period and EPS came in at ¥49.95 billion ($372.22 million) and ¥131.42, representing a 2.5% and 3.1% year-over-year increase, respectively.
Analysts expect TTDKY’s revenue for the fiscal year that ended March 31, 2023, to increase 399.9% year-over-year to $16.17 billion, while its EPS is expected to amount to $2.63 in the same period. Moreover, it surpassed the revenue estimates in each of the trailing four quarters.
TTDKY’s net income and EBITDA grew at CAGRs of 29.7% and 19.1% over the past three years. Likewise, its EPS grew at a CAGR of 29.7% during the same period.
The stock has gained 21.2% over the past nine months to close the last trading session at $34.84.
TTDKY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TTDKY is also rated A in Stability and a B in Value and Momentum. In the 40-stock Technology - Hardware industry, it is ranked #3.
To see additional POWR Ratings for Growth, Sentiment, and Quality for TTDKY, click here.
Vtech Holdings Limited (VTKLY)
VTKLY is a Hong Kong-based investment holding company principally engaged in electronic products-related businesses. Its main businesses include the design, manufacture, and distribution of consumer electronic products, such as electronic education toys and phones, under the Vtech and LeapFrog brands. It has a five-year monthly beta of 0.75.
On April 4, the company’s KidiZoom® Smartwatch topped for the fourth time in the Youth Electronics Supercategory by Circana. With the best-selling product, VTKLY continues to lead as a pioneer in the children's wearable technology category. Moreover, this recognition should help bolster the demand for smartwatches and yield substantial revenues.
For the six-month period that ended September 30, 2022, VTKLY’s revenue increased 4.5% year-over-year to $1.16 billion. Its gross profit grew 8% from the year-ago value to $329.40 million, while its operating profit rose 9% year-over-year to $99 million in the same period.
Also, the company’s profit for the period and earnings per share came in at $82 million and 32.5 cents, representing a 6.6% year-over-year increase.
VTKLY’s revenue is expected to increase by 3.3% year-over-year in the fiscal year 2024 to $2.36 billion. Over the past five years, its revenue grew at a CAGR of 2.5%. The stock’s total assets and levered FCF grew at CAGRs of 3.6% and 1.9% over the past three years.
Over the past six months, the stock has gained 4.1% to close the last trading session at $5.82.
VTKLY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Value, Stability, and Quality. In the same industry, it is ranked #4 out of 40 stocks. Click here to see the other ratings of VTKLY for Growth and Sentiment.
Spirent Communications plc (SPMYY)
Headquartered in Crawley, the United Kingdom, SPMYY is a global provider of automated test and assurance solutions for networks, cybersecurity, and positioning. The company operates through Lifecycle Service Assurance; and Networks & Security segments. SPMYY has a beta of 0.38.
On February 23, the company announced that NTT DOCOMO, INC. uses SPMYY’s technology for 5G Open RAN Ecosystem (OREC) testing.
The combination of the portfolio focused on the O-RAN testing challenges provides the most complete, integrated solutions for addressing the O-RAN market specifically designed and tailored for functional and performance testing. In addition, this reflects the strong demand for SPMYY solutions.
In the same month, SPMYY partnered with Anritsu Corporation to develop a comprehensive test solution for evaluating the performance of 5G standalone (SA) mobile devices. The new test solution combines SPMYY’s technology with Anritsu’s 5G NR Mobile Device Test Platform to offer a complete 5G SA network simulation and device testing capability.
This partnership aims to provide device makers and mobile network operators with a reliable and comprehensive solution for testing 5G SA devices and networks, which will help accelerate the deployment of 5G technology and services.
SPMYY’s net revenue increased 5.4% year-over-year to $607.50 million for the fiscal year that ended December 31, 2022. Its gross profit came in at $437.10 million, representing an increase of 2.9% from the year-ago period.
The company’s adjusted operating profit rose 9.3% from the year-ago value to $129.50, while its adjusted attributable profit for the year increased 13.4% year-over-year to $114.50 million. Also, its adjusted earnings per share stood at $18.75, up 14% year-over-year.
Street expects SPMYY’s revenue to increase marginally year-over-year in the fiscal year 2023 and 3.5% year-over-year in the fiscal year 2024 to $600.06 million and $621.02 million, respectively. The company’s revenue has grown at 6.5% and 6% CAGRs over the past three and five years, respectively. Also, its EPS has grown at a 9% CAGR over the past three years.
SPMYY’s shares have gained 7.9% over the past month to close the last trading session at $9.16.
It’s no surprise that SPMYY has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It also has an A grade for Quality and a B for Value and Stability. Within the same industry, it is ranked first.
In addition to the POWR Ratings we stated above, we also have SPMYY ratings for Growth, Momentum, and Sentiment. Get all SPMYY ratings here.
Consider This Before Placing Your Next Trade…
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TTDKY shares were trading at $33.98 per share on Wednesday morning, down $0.86 (-2.47%). Year-to-date, TTDKY has gained 4.43%, versus a 8.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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