While macroeconomic uncertainty could hamper the tech industry’s near-term growth, the industry’s long-term prospects look promising in light of consistent innovations and digital transformation across industries.
Therefore, investing in fundamentally sound tech stock Cisco Systems, Inc. (CSCO) could be wise. However, I think BlackBerry Limited (BB) is best avoided now, given its weak financials.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the tech industry.
According to the most recent Gartner, Inc. prediction, worldwide IT spending would hit $4.7 trillion in 2023, a 4.3% increase from 2022.
The digital transformation market is altering industries and business strategies by embracing digital technology to optimize operations, improve customer experiences, and drive innovation as connectivity, data proliferation, and cloud computing become prevalent. The digital transformation market is expected to be worth $2.37 billion by 2030, growing at an 18.6% CAGR.
Moreover, the global optical communication and networking equipment market will reach $47.59 billion by 2032, increasing at an 8.4% CAGR due to rising demand for high-speed connectivity, smartphone usage, and internet usage. Investors’ interest in tech stocks is evident from the iShares U.S. Technology ETF’s (IYW) 18.7% returns over the past six months.
Let us look deeper into the fundamentals of the featured 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.
CSCO’s forward EV/EBIT multiple of 10.34 is 42.4% lower than the industry average of 17.95. Its forward non-GAAP P/E multiple of 13.34% is 38.6% lower than the industry average of 21.72.
CSCO’s trailing-12-month ROCE of 18.71% 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%.
For 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.
The consensus revenue estimate of 57.95 billion for the year ending July 2024 represents a marginally increase year-over-year. Its EPS is expected to grow at 4.3% year-over-year to $4.06 for the same period. It surpassed EPS estimates in all four trailing quarters. CSCO’s shares have gained 34.7% over the past year to close the last trading session at $54.16.
CSCO’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade in Quality and a B in Stability. It is ranked #5 out of 49 stocks in the Technology – Communication/Networking industry. Click here to see the other ratings of CSCO (Momentum, Growth, Sentiment, and Value).
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 forward non-GAAP PEG multiple of 11.53 is 540.2% higher than the industry average of 1.80. Its forward EV/EBITDA multiple of 65.69% is 375.2% higher than the industry average of 13.82.
BB’s trailing-12-month CAPEX/Sales of 0.73% is 69.8% lower than the industry average of 2.41%. Its asset turnover ratio of 0.41x is 33% lower than the industry average of 0.62x.
For the fiscal second quarter ended August 31, 2023, BB’s revenue decreased 21.4% year-over-year to $132 million. Its adjusted gross margin decreased 19.6% over the prior-year quarter to $86 million. The company’s adjusted net loss came in at $23 million. Its adjusted loss per share came in at $0.04.
Analysts expect BB’s EPS to come in at negative $0.02 for the quarter ending November 2023. The stock has lost 31.2% over the past month to close the last trading session at $3.71.
BB’s bleak outlook is reflected in its POWR Ratings. The stock has an overall D rating, which translates to a sell in our proprietary rating system. It has an F grade for stability and a D for sentiment, growth, and quality. It is ranked #44 in the same industry.
Beyond what is stated above, we’ve also rated BB for Value and Momentum. Get all BB ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
CSCO shares were trading at $53.49 per share on Tuesday morning, down $0.67 (-1.24%). Year-to-date, CSCO has gained 15.72%, versus a 15.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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