Some investors worry about an expensive market near all-time highs. But not every stock is near its all-time high today, nor is every stock expensive.
That goes for even certain parts of the high-growth technology sector. In fact, technology companies focused on the auto and industrial markets are actually mired in a nasty downturn.
These stocks boomed after Covid, but the rapid rise in interest rates has caused a steep drop in demand. In turn, many stocks focused on these end-markets have plunged.
But over the long-term, survivors in the automation and electrification industries should grow. And the following beaten-down stocks have massive cash piles, both to secure their survival in the downturn and capitalize on the next upswing.
Axcelis Technologies
Axcelis Technologies(NASDAQ: ACLS) is a worldwide leader in ion implantation equipment for semiconductor manufacturing. By infusing silicon with different ions, chipmakers can change a chip's properties to enhance certain features.
For instance, the alloy silicon carbide (SiC) boosts chip performance at higher heat and voltage thresholds relative to traditional silicon. That makes SiC an attractive choice in applications like electric vehicles and infrastructure. Despite the recent EV downturn, SiC chips are supposed to be a long-term growth market.
41% of Axcelis' 2024 sales went to silicon carbide production, with a broader 97% going toward trailing-edge chips used in automotive, industrial, and consumer electronics devices.
The recent down-cycle in these applications has hit Axcelis' earnings hard. Earnings per share peaked at $7.43 in 2023 and fell to $6.15 per share in 2024. On the recent Q4 2024 earnings call, management guided for a 27% sequential decline in revenue in the first quarter 2025, and for EPS to fall to $0.38, or an annualized run-rate of just $1.52.
In that light, no wonder the stock has fallen 66% from its 2023 high of $201 to just $59 per share today.
But a few things to keep in mind. First, based on conversations with customers, management thinks the first half of 2025 will be the bottom of this cycle, with things improving in the second half of 2025 and then growing into 2026.
Second, Axcelis is sitting on $571.3 million in cash and no debt, or $17.48 per share, making up almost 30% of the stock's market cap. Stripping out that cash leaves a stock price of about $42 per share, or 5.7 times peak 2023 earnings.
While Axcelis may not get back to that level of earnings anytime soon, it could very well get back there in a few years. Meanwhile, the company is still generating cash in the downcycle, which it can use to repurchase stock or perhaps make growth-oriented acquisitions.
While it's hard to pinpoint a near-term bottom, long-term oriented investors should do well buying at these prices.
Image source: Getty Images.
IPG Photonics
Another cash-rich company exposed to today's industrial and auto sector headwinds is IPG Photonics(NASDAQ: IPGP). IPG makes high-end lasers for welding, cutting, and other industrial use cases, including medical applications.
Like Axcelis, IPG has been in a horrid downturn, but IPG has actually had it worse than peers. Unfortunately, IPG had some production in Russia at the time of Russia's invasion of Ukraine. The stoppage of business and sale of that Russia manufacturing plant further complicated a recovery.
After hitting a high of $264 per share in 2021, shares have fallen 74% to just around $64 today.
But like Axcelis, IPG has a huge amount of cash. As of December 31, the company had $930.1 million in cash and no debt. That amounts to $21.86 per share, or roughly one-third of the company's market cap.
IPG's peak earnings were back in 2021, when it earned $5.16 per share. Shares currently trade at just 12 times that figure, but stripping out its cash, that P/E ratio on 2021 earnings falls to just 8.1.
On IPG's earnings call last Tuesday, new CEO Mark Gitin said in 2025 the company would use its strong financial position to invest in technologies that will differentiate IPG further from competitors. However, he also said the company would be "less aggressive" with share repurchases this year. IPG has done a good job of repurchasing shares in recent years, lowering its share count more than 8% in 2024 alone.
Gitin only became CEO in June of 2024, so he's likely looking to make his mark on the business. Given that IPG made just $7.8 million in a soft Q4, increased strategic investments could produce a loss-making quarter in the near-term.
Thus, it's not surprising the stock sold off to 52-week lows on the news. But if there's any sort of eventual industrial or auto recovery, IPG could rally in a big way. And it's large cash reserves should allow investors to sleep well at night as they wait for an upturn.
Should you invest $1,000 in Axcelis Technologies right now?
Before you buy stock in Axcelis Technologies, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Axcelis Technologies wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $829,128!*
Now, it’s worth notingStock Advisor’s total average return is948% — a market-crushing outperformance compared to176%for the S&P 500. Don’t miss out on the latest top 10 list.
Billy Duberstein and/or his clients have the following options: short June 2025 $40 puts on Axcelis Technologies and short March 2025 $50 puts on Axcelis Technologies. The Motley Fool recommends IPG Photonics. The Motley Fool has a disclosure policy.
