In this article, we will take a look at the 10 most undervalued tech stocks to buy according to hedge funds. To see more such companies, go directly to 5 Most Undervalued Tech Stocks to Buy According to Hedge Funds.
Tech stocks took a beating last year as investors fled growth stocks amid rising inflation and increasing interest rates. Technology companies enjoyed an era of absolute optimism over the past few years as investors were willing to pay a premium for loss-making tech stocks whose profits were somewhere in the distant future. As markets began to waver, investors no longer bought these promises and instead looked to buy profitable, defensive companies. Tough times for tech stocks are expected to continue this year as the economy faces turbulence. In an interview with Bloomberg, Morgan Stanley Investment Management Senior Portfolio Manager Andrew Slimmon advised investors to be “careful” when it comes to tech stocks in the short term. The analyst said he has no doubt earnings of tech companies will be strong but believes that positivity is already priced in the share prices of tech companies.
Technology companies are also starting to announce massive layoffs. Among the companies that recently fired thousands of employees include Microsoft, Meta, Stripe, Amazon, Cisco, among many others.
Bank of America analyst Savita Subramanian believes these cost-saving measures show the future isn’t too bright for tech companies as they are expected to face a slowdown in growth and sales.
Michael Wilson, chief US equity strategist at Morgan Stanley, also thinks that the tech sector will continue to face pressure this year. The analyst said the 2022 performance of tech stocks was “the mirror image of what we’ve experienced in the last seven years.”
“To think that that’s all completed now I think would be naïve,” Wilson added.
However, long-term investing involves identifying strong companies when they are down and investing in them before they begin to rise. There are many notable analysts who believe tech stocks are set for a rally in 2023, especially those that have strong fundamentals and attractive valuations. Among these bulls is Dan Ives, managing director and senior equity research analyst at Wedbush Securities. Ives thinks tech stocks can gain about 20% in 2023.
Earlier in January, talking to Yahoo Finance, Constellation Research Principal Analyst and Founder R “Ray” Wang said that major tech companies like Alphabet, Amazon (AMZN), and Microsoft (MSFT) are primed to benefit in 2023.
Wang also named Adobe, Workday and ServiceNow and said these three companies are “doing really” well because they have “long-term enterprise contracts.”
Photo by Ruben Sukatendel on Unsplash
Our Methodology
For this article, we first used stock screeners to find technology stocks with PE ratios less than 20 as of January 28. From the resultant dataset, we picked 10 technology stocks that had the most number of hedge funds having stakes in them. For that we used Insider Monkey’s database of 920 elite hedge funds’ holdings.
Number of Hedge Fund Holders: 24
Nokia Oyj (NYSE:NOK) is one of the notable stocks that remains an attractive investment option for investors looking to invest in cheap tech stocks. Nokia Oyj (NYSE:NOK) recently impressed the Wall Street with its upbeat quarterly results. Nokia Oyj (NYSE:NOK)’s adjusted EPS in the fourth quarter came in at EUR0.16, beating estimates by EUR0.03. Revenue in the quarter jumped 12.2% on a YoY basis to total EUR7.45 billion. Nokia Oyj (NYSE:NOK) said its enterprise net sales jumped 49% in the period on a YoY basis. Free cash flow in the quarter was EUR0.4 billion. Nokia Oyj (NYSE:NOK)’s board also proposed a dividend authorization of EUR0.12 per share.
Here is what Horos Asset Management has to say about Nokia Oyj (NYSE:NOK) in its Q3 2022 investor letter:
“Two clear examples of value traps that I remember with particular anger includes Nokia (NYSE:NOK). Two companies that suffered a rapid technological disruption in their business model and did not know or were not able to reinvent themselves in time. In the case of Nokia, we were dealing with the undisputed leader in cell phone sales. The company had an (apparently) ultra-solid balance sheet and enviable operating margins. However, the arrival of the smartphone brought a radical change to the industry, to which Nokia did not know how to adapt. In a short period of time, players such as Apple and Samsung wiped the Finnish giant off the map.”
Number of Hedge Fund Holders: 24
Arizona-based Amkor Technology, Inc. (NASDAQ:AMKR) is a semiconductor product packaging and test services provider. Amkor Technology, Inc. (NASDAQ:AMKR) has a PE ratio of 8.9 as of January 27. Amkor Technology, Inc. (NASDAQ:AMKR) is the second largest provider of outsourced semiconductor packaging and testing services (OSAT) with a 15% market share. Most of the players in the OSAT market are located in Asia. Amkor Technology, Inc. (NASDAQ:AMKR) has an advantage that it is the only notable company operating in its niche market in the US. Amkor Technology, Inc. (NASDAQ:AMKR) bulls believe the company is expected to benefit from the rise in spending in the OSAT market.
As of the end of the third quarter of 2022, 24 hedge funds tracked by Insider Monkey reported owning stakes in Amkor Technology, Inc. (NASDAQ:AMKR). The total value of these stakes was $118 million. At the end of the second quarter, 20 hedge funds had stakes in Amkor Technology, Inc. (NASDAQ:AMKR). This shows that Amkor Technology, Inc. (NASDAQ:AMKR) saw an increase in hedge fund activity during the third quarter of 2022. The biggest stakeholder of Amkor Technology, Inc. (NASDAQ:AMKR) at the end of the September quarter was Stephen White’s SW Investment Management, which has a $51 million stake in Amkor Technology, Inc. (NASDAQ:AMKR).
Number of Hedge Fund Holders: 27
Sony Group Corporation (NYSE:SONY) has become a behemoth in the entertainment space. Sony Group Corporation (NYSE:SONY) is operating in streaming, movies, gaming, and other lucrative segments. Of the 920 hedge funds tracked by Insider Monkey, 27 hedge funds had stakes in Sony Group Corporation (NYSE:SONY), as of the end of the third quarter. In Q1-2 FY3/2023, Sony Group Corporation (NYSE:SONY)’s music division posted operating profit growth of 34% on a year-over-year basis. This growth was driven by subscription streaming services.
In December, it was reported that Sony Group Corporation (NYSE:SONY) was mulling making a new smartphone image sensor factory in Japan. Sony Group Corporation (NYSE:SONY) could reportedly begin to produce image sensor chips as soon as 2025.
As of the end of the third quarter, Ken Fisher’s Fisher Asset Management owns a $304 million stake in Sony Group Corporation (NYSE:SONY). Another notable stakeholder in Sony Group Corporation (NYSE:SONY) was Mario Gabelli’s GAMCO which reported owning an $108 million stake in the company at the end of the September quarter.
Aristotle Capital made the following comment about Sony Group Corporation (NYSE:SONY) in its Q3 2022 investor letter:
“Sony Group Corporation (NYSE:SONY), the global provider of video games and consoles, image sensors, and music, as well as movies, was a major detractor for the period. The share price of the company has struggled this year following its strong performance in 2021. Signs of a slowdown in the gaming industry (as people seem inclined to take on outdoor activities as pandemic fears have subsided), combined with sales of its PlayStation 5 that have been held up by a global parts shortage, have led to gaming‐related software sales falling more than 20% year‐over‐year. Rather than focusing on short‐term demand dislocations, we focus on the company’s ability to continue migrating videogame users toward the firm’s subscription offerings, as well as its capacity to leverage content across its video, music and gaming platforms. We are also impressed with the expansion of Sony’s Music segment, which has been supported by the pervasiveness of streaming services. Management’s ongoing work to improve the company’s TV and film studios is bearing fruit as well, with sales growing 67% year‐over‐year for its Pictures segment as its regional strategy has taken hold, including recent progress made toward solidifying a merger plan with India‐based Zee Entertainment. All of this is to say we remain excited by the oligopolistic nature of the businesses Sony operates in, and the future prospects for the company given its leadership in image sensors, music publishing and gaming consoles.”
Number of Hedge Fund Holders: 30
HP Inc. (NYSE:HPQ) is one of the most undervalued tech stocks to buy today, according to hedge funds. Of the 920 elite hedge funds in Insider Monkey’s database, 42 had stakes in HP Inc. (NYSE:HPQ), compared to 35 funds in the previous quarter. The total value of these stakes was about $2.9 billion. The biggest stakeholder of HP Inc. (NYSE:HPQ) was Warren Buffett’s Berkshire Hathaway, with a $2.6 billion stake. HP Inc. (NYSE:HPQ) is currently under pressure amid weakness in the PC market. Recently, HP Inc. (NYSE:HPQ) fell after Citi’s Jim Suva noted that fourth-quarter data from market research firm IDC showed a worse-than-expected decline in the PC market.
Still, HP Inc. (NYSE:HPQ) remains one of the leaders in the PC market. When the market begins to rebound, HP Inc. (NYSE:HPQ) will be one of the biggest beneficiaries. HP Inc. (NYSE:HPQ) is also working to diversify its operations. HP Inc. (NYSE:HPQ) management recently gave an update on its FutureReady program, which has delivered $1.2 billion in annual savings. In fiscal 2022, HP Inc. (NYSE:HPQ) posted $4.5 billion in operating cash flow and had a strong 87% free cash flow conversion.
Number of Hedge Fund Holders: 39
Cognizant Technology Solutions Corporation (NASDAQ:CTSH) ranks 6th in our list of the most undervalued tech stocks to buy according to hedge funds.
A total of 39 hedge funds tracked by Insider Monkey had stakes in Cognizant Technology Solutions Corporation (NASDAQ:CTSH) as of the end of the third quarter. The total worth of these stakes was $1.8 billion. Cognizant Technology Solutions Corporation (NASDAQ:CTSH) has a solid business and the firm is seeing a rise in demand for its products and services. As of November 2022, Cognizant Technology Solutions Corporation (NASDAQ:CTSH) had $750 million in net cash. Cognizant Technology Solutions Corporation (NASDAQ:CTSH) was expecting to generate about $2.3 billion in free cash flow in 2022 and 2023. Cognizant Technology Solutions Corporation (NASDAQ:CTSH) is on an acquisition spree lately to expand into new markets.
Earlier in January, Cognizant Technology Solutions Corporation (NASDAQ:CTSH) said it will buy U.K.-based IoT software engineering services provider, Mobica. In December, Cognizant Technology Solutions Corporation (NASDAQ:CTSH) said it will acquire Houston-based consulting and solutions provider, Utegration.
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Disclosure: None. 10 Most Undervalued Tech Stocks to Buy According to Hedge Funds is originally published on Insider Monkey.
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