2020 was a great 12 months for growth stocks, many of which became non permanent safe havens all through the pandemic. But this yr, lots of development shares misplaced their momentum amid concerns about bigger bond yields, inflation rates, and tough 12 months-about-year comparisons for “pandemic shares.”
In reaction, many traders rotated from progress to value shares. That ongoing trend could reward three low-priced tech stocks that continue to have loads of upside opportunity: Seagate (NASDAQ:STX), Micron (NASDAQ:MU), and Baidu (NASDAQ:BIDU).
Seagate holds a in the vicinity of-duopoly in HDDs (really hard disk drives) with Western Digital (NASDAQ:WDC), but it truly is often dismissed as a slow-expansion business due to the fact HDDs facial area intense competitors from flash-primarily based SSDs (sound-condition drives), which are smaller, quicker, additional energy efficient, and less susceptible to harm.
Seagate also did not grow into the SSD market place, as WD did with its takeover of SanDisk 5 a long time in the past. As an alternative of coming into the unstable SSD marketplace, which would have uncovered it to cyclical memory chip charges and powerful competitors, Seagate pivoted away from decrease-ability HDDs and designed more increased-capability HDDs for finances-acutely aware enterprise, cloud, and information center buyers.
As a final result, Seagate’s gross margin expanded as it bought far more greater-potential HDDs, and tighter cost controls boosted its operating margin and created extra fresh new income for buybacks and dividends.
About the previous decade, Seagate reduced its share count by 46% as WD’s share depend enhanced far more than 30%. Seagate also continued to shell out its dividend through the pandemic as WD halted its payments, and it really is raised its payout above the past two years. It at this time pays a forward dividend yield of 2.7%.
Seagate’s profits rose just 1% in fiscal 2020, which finished final July, but its altered EPS dipped 4% as the pandemic spread. Analysts anticipate its profits and earnings to mature 1% and 9%, respectively, prior to accelerating upcoming 12 months. Seagate expects its gross margin to continue on growing all over fiscal 2022 as it sells additional increased-ability HDDs, and the inventory nonetheless appears to be like low cost at 18 instances ahead earnings.
Micron, a person of the world’s best producers of NAND (flash memory) and DRAM chips, suffered a slowdown very last yr as memory price ranges declined and the pandemic disrupted many sectors. Its income dropped 8% in fiscal 2020, which finished final August, as its adjusted earnings plunged 55%.
But in the 1st 50 % of 2021, Micron’s revenue and earnings jumped 21% and 43%, respectively, as memory chip price ranges rebounded amid surging desire from the cell, gaming, Laptop, and facts middle marketplaces.
5G updates, new gaming consoles, and continue to be-at-house trends all contributed to that expansion, while the worldwide semiconductor scarcity curbed the output of new memory chips and boosted marketplace selling prices. As a outcome, Micron is now marketing its chips as swiftly as it can deliver them at elevated costs.
That’s why analysts be expecting Micron’s income and earnings to increase 26% and 96%, respectively, this 12 months. Those are jaw-dropping advancement charges for a inventory that trades at just about 7 situations forward earnings.
The bears could declare Micron’s inventory is low cost since its organization is cyclical, but it only passed its hottest trough past year — and the ongoing chip scarcity implies it’s however considerably away from its next peak.
Baidu, which owns China’s top lookup motor, is also typically dismissed as an also-ran in the country’s crowded tech sector. The bears assert Baidu will wrestle as China’s world wide web customers depend a lot less on standard lookups and more on monolithic apps like Tencent‘s WeChat.
Which is partly correct, but Baidu has been expanding its ecosystem over and above online searches with its DuerOS virtual assistant, Intelligent Mini Packages that work within its cell app, its Apollo application system for driverless autos, and its Baidu AI Cloud system. It’s also in the process of purchasing the reside online video system YY Are living from JOYY.
All those moves could help Baidu tether much more buyers to its system, lower its dependence on common research-primarily based adverts, and widen its moat towards Tencent, Alibaba, ByteDance, and other tech giants.
Baidu’s profits stayed flat in 2020, but its modified EPS grew 23% as it reduced its lookup engine’s targeted visitors acquisition expenditures. In the to start with quarter of 2021, its on the net advertising and marketing earnings rose year about year for the to start with time in 8 quarters as the pandemic passed, and it expects that restoration to go on.
Analysts hope Baidu’s revenue to grow 22% this 12 months, but for its earnings to dip 4% as it ramps up its shelling out again. Its dependence on decrease-margin businesses, such as Baidu Cloud and its video platform iQiyi, could however exacerbate that pressure.
But in excess of the prolonged phrase, Baidu’s AI, driverless, and electric powered car investments could all finally bear fruit. If that transpires, the inventory could be a deal at 16 times forward earnings.
This report signifies the impression of the author, who may disagree with the “official” advice situation of a Motley Idiot premium advisory provider. We’re motley! Questioning an investing thesis — even 1 of our very own — allows us all consider critically about investing and make choices that assistance us come to be smarter, happier, and richer.