Buy-the-dip investors should check out these tech stocks.
The S&P 500 is up more than 20% this year through Nov. 23, and the technology sector has once again led the charge higher. The Technology Select Sector SPDR Fund (ticker: XLK), which tracks the tech components of the S&P 500, is up 30% in 2021, for example, but a small number of high-quality tech stocks haven’t participated in the rally. If you missed out on this year’s tech stock boom, are looking to rebalance your portfolio or are simply hunting for opportunities to buy the dip in overlooked tech stocks, here are seven tech stocks to buy that are down at least 10% over the past six months, according to Morningstar analysts.
Global Payments Inc. (GPN)
Global Payments provides payment technology and software to merchants and financial institutions. The stock is down about 35% in the past six months, but Morningstar analyst Brett Horn says the company can return to the growth it experienced in the past. Following a merger with Total System Services in 2019, Horn says, Global Payments is increasing its focus on international expansion, omnichannel solutions and business software integration. Payment transactions fell sharply in 2020 during the health crisis, but Horn says small merchant volumes are starting to normalize. Morningstar has a “buy” rating and a $186 fair value estimate for GPN stock, which closed at $125.05 on Nov. 23.
Citrix Systems Inc. (CTXS)
Citrix Systems provides hardware, software and services for secure user authentication and access to virtualized files and applications. Citrix shares are down more than 25% in the past six months, but analyst Dan Romanoff says investors shouldn’t be spooked by the company’s lackluster guidance. Citrix says its underlying business trends are healthy, but the company has suffered from poor forecasting and operational inefficiencies. Investors are understandably frustrated after six years of restructuring efforts, but Romanoff says patient value investors will likely be rewarded. Morningstar has a “buy” rating and a $116 fair value estimate for CTXS stock, which closed at $84.01 on Nov. 23.
VMware Inc. (VMW)
VMware provides virtualization software and services. Company shares are down about 28% in the past six months, but the sell-off isn’t what it may seem. In November, VMware paid investors a special cash dividend of $27.40 per share, which effectively dropped its share price. The special dividend was part of Dell Technologies Inc. (DELL) spinning off its VMware stake. Analyst Mark Cash says the separation from Dell is bullish for both companies and sets VMware up as a potential growth stock with impressive free cash flow generation. Morningstar has a “buy” rating and a $175 fair value estimate for VMW stock, which closed at $116.57 on Nov. 23.
Zendesk Inc. (ZEN)
Zendesk provides cloud-based support software to manage customer email, online chat and call center interactions. The stock is down more than 30% over the past six months, and Romanoff says much of that weakness came after the company announced a roughly $4 billion buyout of Momentive. Zendesk says Momentive’s SurveyMonkey business is a valuable customer intelligence platform, but shareholders may be skeptical of Momentive’s slower growth and lower margin profile. Romanoff was also initially skeptical of the Momentive deal but says patient Zendesk investors will likely be rewarded. Morningstar has a “buy” rating and a $153 fair value estimate for ZEN stock, which closed at $91.74 on Nov. 23.
Fidelity National Information Services Inc. (FIS)
Fidelity National Information Services provides financial technology products for merchants, banks and other firms. Fidelity National shares are down more than 25% in the past six months, but Horn says the company is on track to achieve its Worldpay synergy targets and has a bullish long-term outlook. After a difficult 2020, Horn says payment volumes have steadily improved and the pandemic could ultimately benefit the industry by accelerating the secular shift away from cash. He says all of Fidelity National’s segments are leaders within their respective businesses. Morningstar has a “buy” rating and a $142 fair value estimate for FIS stock, which closed at $108.71 on Nov. 23.
Western Digital Corp. (WDC)
Western Digital designs storage products for data centers, mobile devices and personal computers. The stock is down about 20% in the past six months, but analyst William Kerwin says the market overreacted to Western Digital’s disappointing fiscal second-quarter guidance in October. Kerwin says the company is making strides in its transition to the cloud and is experiencing pricing and margin leverage in a tightly supplied market. He says cloud spending will continue to drive long-term demand for Western Digital’s hard disk drive and flash storage businesses. Morningstar has a “buy” rating and a $70 fair value estimate for WDC stock, which closed at $60.53 on Nov. 23.
Fiserv Inc. (FISV)
Fiserv provides financial technology and services for merchants, banks and other firms. The stock is down about 15% in the past six months, but Horn says Fiserv’s high-growth small-business offering Clover is an excellent example of how Fiserv has adapted to a changing environment and is well-positioned for the long term. While Clover accounts for a small fraction of Fiserv’s total sales, Horn says it has strong pricing leverage and is exactly the type of growth source Fiserv needs as it works to further reduce debt. Morningstar has a “buy” rating and a $121 fair value estimate for FISV stock, which closed at $96.11 on Nov. 23.
Oversold tech stocks to buy:
— Global Payments Inc. (GPN)
— Citrix Systems Inc. (CTXS)
— VMware Inc. (VMW)
— Zendesk Inc. (ZEN)
— Fidelity National Information Services Inc. (FIS)
— Western Digital Corp. (WDC)
— Fiserv Inc. (FISV)