Global digitization and increasing global expenditure on communication services are expected to drive growth in the tech industry. However, supply chain issues and disrupted manufacturing processes continue to impact the market.
Therefore, while I think quality tech stock Cisco Systems, Inc. (CSCO) might be a solid buy now, Motorola Solutions, Inc. (MSI) might be best kept on hold, and BlackBerry Limited (BB) might be best avoided, given its weak fundamentals.
The growing digitization trend, as well as the increasing requirement for effective resource utilization, are likely to fuel technology market expansion. The digital transformation market is expected to increase at a CAGR of 24.1% to $ 3.14 trillion by 2030.
Furthermore, Gartner anticipates global expenditure on communication services for the current year to reach $1.46 trillion, marking a 2.7% increase compared to the preceding year, while spending in the next year is expected to come in at $1.52 trillion, up 3.8% year-over-year.
Although the industry is experiencing substantial growth, the pandemic has introduced significant disruptions in the supply chain and manufacturing processes. These disruptions have resulted in shortages of essential raw materials and delays in product deliveries within the technology sector.
Let’s dig deeper into the fundamentals of the above-mentioned stocks.
Stock to Buy:
Cisco Systems, Inc. (CSCO)
CSCO is engaged in designing, manufacturing, and selling Internet Protocol-based networking and other products related to the communications and information technology industry. The company offers wireless products, routed optical networking, 5G, silicon, optics solutions, etc.
On September 12, 2023, CSCO announced that it was working with PT Link Net Tbk (Link Net), one of the leading providers of fixed broadband internet and cable TV in Indonesia, with the brand First Media, and Qwilt to deploy their Content Delivery Network solution, elevating the quality and delivery capacity of Link Net’s streaming applications to more than 3 million homes across Indonesia.
The deployment brings Link Net actively into the content delivery value chain while enabling content publishers across the region to deliver their content in the quality it was imagined.
On August 28, CSCO and Nutanix, Inc. (NTNX), a leader in hybrid multicloud computing, announced a global strategic partnership to accelerate hybrid multicloud deployments by offering the industry's most complete hyperconverged solution for IT modernization and business transformation.
CSCO pays $1.56 annually as dividends, which translates to a yield of 2.78% at the current price. Its four-year average dividend yield is 3.06%.
CSCO’s trailing-12-month ROCE of 22.99% is significantly higher than the industry average of 1.01%. Its trailing-12-month net income margin of 22.13% is 988.1% higher than the industry average of 2.03%.
In the fiscal fourth quarter ended July 29, 2023, CSCO’s total revenue increased 16.9% year-over-year to $15.20 billion. The company’s non-GAAP net income increased 36.1% year-over-year to $4.68 billion. Also, its non-GAAP EPS increased 37.3% year-over-year to $1.14.
Street expects CSCO’s revenue to increase 7.3% year-over-year to $14.63 billion for the fiscal first quarter ending October 2023. Its EPS is expected to grow at 19.9% year-over-year to $1.03 for the same quarter. Also, the company topped the consensus revenue and EPS estimates in each of the four trailing quarters, which is impressive.
The stock gained 29.7% year-over-year to close the last trading session at $56.12.
CSCO’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade in Quality and a B in Stability. It is ranked #3 out of 51 stocks in the Technology - Communication/Networking industry.
Click here to see the other ratings of CSCO (Momentum, Growth, Sentiment, and Value).
Stock to Hold:
Motorola Solutions, Inc. (MSI)
MSI offers public safety and enterprise security solutions, including land mobile radio communications (LMR), video security, access control, and command center software backed by managed services. Its segments include Products and Systems Integration; and Software and Services.
On August 16, 2023, MSI announced that the company signed a contract with the Ministry of the Interior of the German federal state of Saxony-Anhalt to deploy VB400 body-worn cameras, including VideoManager evidence management software, to the state’s police officers.
On August 8, MSI announced the expansion of its Next Generation Core Services (NGCS) portfolio with the unveiling of CommandCentral Router, one of the industry’s first cloud-based 9-1-1 call routing platforms.
The National Emergency Number Association (NENA) i3-compliant solution works with all of MSI’s emergency call management products and offers public safety answering points (PSAPs) mission-critical, reliable 9-1-1 call routing performance via a cloud-based solution.
The company’s annual dividend of $3.52 translates to a 1.24% yield on the prevailing prices, while its four-year average dividend yield is 1.37%.
In terms of the trailing-12-month gross profit margin, MSI’s 49.53% is 1.8% higher than the 48.66% industry average. Its 1.03% trailing-12-month CAPEX/Sales is 2.59% higher than the 7% industry average.
During the second quarter, MSI’s sales increased 12.3% year-over-year to $2.40 billion. Also, non-GAAP net earnings attributable to MSI came in at $458 million, and non-GAAP EPS came in at $2.65.
However, its selling, general and administrative expenses increased 9.6% year-over-year to $390 million. Research and development expenditures increased 12.6% year-over-year to $215 million.
Analysts expect MSI’s revenue and EPS for the third quarter (ending September 30, 2023) to increase 6.2% and marginally year-over-year to $2.52 billion and $3.02, respectively. Moreover, the company surpassed its EPS and revenue estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 13.9% to close the last trading session at $287.40.
The stock has an overall C rating, equating to a Neutral in our proprietary rating system.
It has a C grade for Momentum and Stability. It is ranked #10 in the same industry.
For MSI’s additional ratings for Growth, Value, Sentiment, and Quality, click here.
Stock to Sell:
BlackBerry Limited (BB)
Headquartered in Waterloo, Canada, BB provides intelligent security software and services to enterprises and governments worldwide. The company operates through three segments: Cybersecurity; IoT; and Licensing and Other.
BB’s trailing-12-month CAPEX/Sales of 0.93% is 61.6% lower than the industry average of 2.42%. Its asset turnover ratio of 0.42x is 32.7% lower than the industry average of 0.62x.
For the fiscal 2024 first quarter that ended May 31, 2023, BB’s revenue increased 122% year-over-year to $373 million. Its operating loss came in at $11 million. In addition, the company’s net loss and net loss per share came in at $11 million and $0.02.
BB’s revenue is expected to decline 9.7% year-over-year to $151.75 million in the fiscal second quarter ended August 2023. Its EPS is expected to be $0.05 for the same quarter.
The stock has plunged 8.7% over the past year to close the last trading session at $5.22.
BB’s grim prospects are reflected in its POWR Ratings. The stock has an overall D rating, which translates to a Sell in our POWR Ratings system.
BB also has a D grade for Stability and Quality. It is ranked #41 in the same industry.
Beyond what is stated above, we’ve also rated BB for Value, Growth, Sentiment, and Momentum. Get all BB ratings here.
What To Do Next?
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CSCO shares were trading at $55.52 per share on Tuesday morning, down $0.59 (-1.05%). Year-to-date, CSCO has gained 19.25%, versus a 16.16% 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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