The tech industry is expected to flourish due to the adoption of new technologies and growing demand for advanced hardwares. In light of this, I think it could be wise to capitalize on the industry’s tailwinds by investing in quality tech stocks NetApp, Inc. (NTAP), AstroNova, Inc. (ALOT), and TransAct Technologies Incorporated (TACT).
Rapidly increasing digital transformation across industries, adoption of new technologies such as artificial intelligence, IoT, and blockchain, and a growing emphasis on leveraging the core competencies by outsourcing non-core operations are the major driving factors of the IT market.
The information technology market is expected to grow at a CAGR of 7.9%.
Also, the increasing digitization of the public sector is a significant driver for the IT hardware market. Governments worldwide recognize the benefits of digital technologies and are implementing various initiatives to enhance their service delivery, improve efficiency, and provide better citizen-centric solutions.
The IT hardware market is expected to grow at a CAGR of 7.9% until 2028.
In addition, the expansion of the IT industry drives the need for advanced and efficient IT hardware solutions. The proliferation of cloud computing and big data analytics has particularly contributed to the growth of the IT hardware market.
Considering these conducive trends, let's take a look at the fundamentals of the three best Technology - Hardware stocks, starting with number 3.
Stock #3: NetApp, Inc. (NTAP)
NTAP provides cloud-led and data-centric services to manage and share data on-premises, and private and public clouds worldwide. It operates in two segments, Hybrid Cloud and Public Cloud.
On August 24, 2023, NTAP announced an extension of its partnership with Google Cloud to deliver new levels of storage performance combined with the cloud's simplicity and flexibility.
NTAP’s trailing 12-month levered FCF margin of 20.60% is 185.9% higher than the 7.20% industry average. Its trailing 12-month gross profit margin of 67.06% is 37.4% higher than the 48.82% industry average.
NTAP’s net revenues came in at $1.43 billion for the fiscal first quarter that ended July 28, 2023. Its non-GAAP net income came in at $249 million and non-GAAP net income per share came in at $1.15.
Analysts expect NTAP’s EPS to be $1.39 in the fiscal second quarter ending October 2023. Its revenue is expected to be $1.53 billion for the same quarter. Also, the company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 27.9% over the past nine months to close the last trading session at $75.51.
NTAP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
NTAP has an A grade for Quality. It ranks #13 out of 42 stocks in the Technology - Hardware industry.
In addition to the POWR Ratings highlighted above, one can see NTAP’s ratings for Growth, Value, Momentum, Stability, and Sentiment here.
Stock #2: AstroNova, Inc. (ALOT)
ALOT designs, develops, manufactures, and distributes specialty printers, and data acquisition and analysis systems in the United States, Europe, Asia, Canada, Central and South America, and internationally. The company operates in two segments, Product Identification (PI) and Test & Measurement (T&M).
On August 1, 2023, ALOT announced the implementation of a realignment of its Product Identification segment. The realignment is designed to streamline the cost structure and enhance the operational efficiencies of the segment to capitalize on the synergies of the Company’s Astro Machine, Inc. subsidiary, which was acquired in August 2022.
ALOT’s trailing-12-month EBIT margin of 4.70% is 4.1% higher than the 4.51% industry average. Its trailing-12-month ROCE of 1.07% is 5.1% higher than the 1.01% industry average.
ALOT’s revenue rose 10% year-over-year to $35.52 million in the second quarter that ended July 29, 2023. The company’s non-GAAP gross profit increased 11.2% year-over-year to $12.66 million, while non-GAAP EPS rose 87.5% year-over-year to $0.15.
Over the past year, the stock has gained 5.6% to close the last trading session at $12.30.
ALOT’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
ALOT has a B grade in Growth, Value, Stability, and Sentiment. It ranks #6 in the same industry.
Click here to access additional ALOT ratings (Momentum and Quality).
Stock #1: TransAct Technologies Incorporated (TACT)
TACT designs, develops, and markets transaction-based and specialty printers and terminals in the United States and internationally.
Its trailing 12-month gross profit margin of 50.68% is 3.8% higher than the 48.82% industry average. Its trailing 12-month EBIT margin of 7.59% is 68.1% higher than the 4.51% industry average.
TACT’s net sales increased 57.7% year-over-year to $19.91 million in its fiscal second quarter (ended June 30, 2023). Its net income came in at $765 thousand, compared to a loss of $2.38 million in the previous-year quarter. Also, its net income per common share came in at $0.08, compared to negative $0.24 in the previous-year quarter.
Street expects TACT’s revenue to be $16.19 million for the fiscal third quarter ending September 30, 2023. Also, the company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 53.3% over the past year to close its last trading session at $6.47.
It's no surprise that the stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
TACT has an A grade for Sentiment and Value and a B in Quality and Momentum. It is ranked #4 within the same industry.
Beyond what is stated above, we’ve also rated TACT for Growth and Stability. Get all TACT ratings here.
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NTAP shares were trading at $75.41 per share on Tuesday morning, down $0.10 (-0.13%). Year-to-date, NTAP has gained 28.43%, versus a 13.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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