Since the beginning of the year, tech stocks have been “correcting” amid intensifying macro headwinds. The April rout in technology stocks has dragged down the major U.S. indices to their worst monthly performances, driven by the investors' escalating worries over surging inflation, rising interest rates, weak corporate earnings, and the possibility the U.S. economy is heading into a recession. Investors have been liquidating tech growth stocks on these heightened fears.
However, the brutal tech selloff affords long-term investors an opportunity to buy financially solid tech stocks at bargain prices. Furthermore, yesterday U.S. stocks managed a relief rally after the Fed raised rates by 50 basis points. And the computer hardware industry has bright growth prospects, driven by solid demand amid extended remote lifestyles and increased corporate spending on IT hardware. According to a report by The Business Research Company, the global computer hardware market is expected to reach $1.57 trillion in 2026, growing at a 6.6% CAGR.
Given the backdrop, it could be profitable to buy the dip in fundamentally strong computer hardware stocks Canon Inc. (CAJ), Lenovo Group Limited (LNVGY), and AstroNova, Inc. (ALOT).
Canon Inc. (CAJ)
Headquartered in Tokyo, CAJ manufactures and sells office multifunction devices (MFDs), plain paper copying machines, printers, cameras, diagnostic equipment, and lithography equipment. The company operates through four segments: Printing Business Unit; Imaging Business Unit; Medical Business Unit; and Industrial and Others Business Unit.
On April 26, CAJ launched six new printers. "Canon is proud to deliver solutions designed to meet new customer needs through the continued expansion of the MAXIFY and imageCLASS printer lines. These new printers are designed to improve efficiency for small and home offices, while being versatile, eco-friendly, and time-saving tools," said Isao "Sammy" Kobayashi, senior vice president and general manager of CAJ. This product expansion is expected to boost the company's sales and growth.
On April 12, CAJ announced new software for Windows, Webcam Driver, which expands the functionality of 4K PTZ cameras. The cameras can be operated as webcams by connecting them via IP to a Windows PC with the Webcam Driver installed. This development might boost the company's profitability.
In its fiscal 2022 first quarter, ended March 31, 2022, CAJ's net sales grew 4.4% year-over-year to $7.21 billion, while its operating profit improved 7.9% from its year-ago value to $624.10 million. The company's earnings before income taxes rose marginally year-over-year to $554.89 million. Its net income attributable to CAJ and net income attributable to CAJ shareholders per share came in at $376.84 billion and $0.36, respectively, registering an increase of 3.4% and 3.4% from the prior-year period.
The $29.42 billion consensus revenue estimate for its fiscal year 2022, ending Dec.31, 2022, represents a 124.9% increase from the previous year. CAJ has surpassed the consensus revenue estimates in three of the trailing four quarters. The $1.93 consensus EPS estimate for the current year indicates an 8% year-over-year rise.
The stock has declined 4.8% in price year-to-date and closed yesterday's trading session at $23.35.
CAJ's POWR Ratings reflect this promising outlook. It has an overall B grade, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
CAJ has an A grade for Quality and a B for Value and Stability. Within the Technology - Hardware industry, it is ranked #2 of 44 stocks.
To see additional POWR Ratings (Growth, Momentum, and Sentiment) for CAJ, click here.
Lenovo Group Limited (LNVGY)
Based in Quarry Bay, Hong Kong, LNVGY is an investment holding company that develops, manufactures, and sells technology products and services. The company operates through two segments: Intelligent Devices Group; and Data Center Group. It offers commercial and consumer personal computers, mobile internet devices, IT products, computer hardware and peripheral equipment, system repair services, and digital services.
In March, LNVGY and Kyndryl Holdings Inc. (KD), a leading IT infrastructure services provider, expanded their global partnership to accelerate hybrid cloud solutions and edge computing solutions. Through their collaboration, LNVGY and KD will create joint solutions to meet customer needs by employing automation, optimization, and differentiated IT infrastructure services. This partnership is expected to extend LNVGY's customer reach globally and boost its revenue streams.
In February, LNVGY unveiled products and solutions designed for a connected and increasingly hybrid world. The company announced the latest additions to its ThinkPad and ThinkVision portfolios. It introduced the new ThinkPad X13s powered by Snapdragon 8cx Gen 3 platform, ThinkPad X1 Extreme Gen 5, ThinkPad P16s, ThinkPad P14s Gen 3, and ThinkBook 14s Yoga Gen 2.
LNVGY's revenue increased 16.7% year-over-year to $20.13 billion in its fiscal year 2022 third quarter, ended Dec. 31, 2021. Its gross profit improved 20.4% year-over-year to $3.36 billion, while its operating profit grew 33% from the year-ago value to $932 million. The company's profit for the year and earnings per share came in at $682 million and $4.92, respectively, registering a58.2% and 59.7% increase year-over-year.
Analysts expect LNVGY's revenue for its fiscal 2022 fourth quarter, ended March 31, 2022, to come in at $17.37 billion, representing an 11.1% rise year-over-year. The company has surpassed the consensus revenue estimates in each of the trailing four quarters.
Shares of LNVGY have decreased 15.2% in price year-to-date and 27.8% over the past year and closed yesterday's trading session at $19.72.
LNVGY's POWR Ratings reflect a strong outlook. The stock has an overall B rating, which translates to Buy in our POWR Ratings system.
LNVGY has a grade of A for Value. It has a grade of B for Growth and Stability. It is ranked #3 of 44 stocks in the Technology - Hardware industry.
Click here to see LNVGY's POWR Ratings for Sentiment, Quality, and Momentum.
AstroNova, Inc. (ALOT)
ALOT develops, manufactures, markets, and sells specialty printers, data acquisition, and analysis systems in the U.S., Canada, Europe, Asia, Central, and South America, and internationally. The West Warwick, R.I. company operates through two segments: Product Identification (PI); and Test & Measurement (T&M). It serves chemicals, medical products, pharmaceuticals, aerospace, transportation, and other industries and brand owners, commercial printers, and packaging manufacturers.
For its fiscal year 2022 fourth quarter, ended Jan. 31, 2022, ALOT's revenue increased marginally year-over-year to $29.70 million, and its profit from the Test & Measurement segment improved 20.2% year-over-year to $7.30 million. The company's non-GAAP operating profit from the Test & Measurement segment came at $495,000, registering a 75.5% rise year-over-year.
The Street expects ALOT's revenue for fiscal 2023 to come in at $125.03 million, representing a 6.4% rise year-over-year. The stock has declined 13.7% in price over the past month and 17.9% over the past year. It closed yesterday's trading session at $13.00.
ALOT's strong fundamentals are reflected in its POWR Ratings. The stock has an overall A grade, which equates to a Strong Buy in our proprietary rating system.
ALOT has an A grade for Value and Sentiment. It has a B grade for Momentum and Quality. Within the Technology - Hardware industry, it is ranked #1 of 44 stocks.
To see additional POWR Ratings (Stability and Growth) for ALOT, click here.
CAJ shares were trading at $22.81 per share on Thursday morning, down $0.54 (-2.31%). Year-to-date, CAJ has declined -6.63%, versus a -12.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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