Any and every investor seeks to buy shares at a low price and sell high. One of the best ways to do so is to identify traditionally undervalued stocks. In this case, in the tech sector, and invest.
The question then becomes: How do we reliably identify undervalued shares? Well, the current P/E ratio for the S&P 500 Information Technology Sector is 31.8. We can use that as a reasonable cut-off point. None of the stocks discussed below have a P/E ratio above that level. However, not all stocks with a P/E ratio lower than 31.8 will necessarily be undervalued. We will consider other factors internal to the company.
That said, let’s dive into seven undervalued tech stocks currently available to investors.
Infosys (NYSE:INFY) provides digital marketing and technology consulting services to the North American, European and Indian markets. That includes anything from e-commerce to analytics to generative AI and beyond.
Infosys stock is attractive based on many metrics. One of the better reasons to believe it offers value to investors at the moment is its P/E ratio and forward P/E ratio. Each is well below that 31.8 figure I cited above, but that isn’t the point I want to make. Instead, I want to note that the forward P/E ratio is lower than the P/E ratio. That indicates analysts expect an increase in earnings, which should also help the share price to rise.
The company continues to face issues as the Indian IT sector remains unstable. However, most of the analyst price cuts have already occurred following the firm’s earnings report a month and a half ago. Now may very well be the chance to establish a position in Infosys.
Keysight Technologies (KEYS)
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Keysight Technologies (NYSE:KEYS) provides electronic design and testing solutions instruments with wide applicability across several industries. Its products largely comprise meters, sensors and related software.
The company will release second-quarter results on May 20th but there is reason to believe in its fundamental strength in anticipation of those results. During the first quarter, Keysight Technologies delivered results above the high end of guidance. The company noted overall constraints in the market yet said that particular strengths in defense, aerospace and IT in relation to AI helped it to perform well.
Overall, the stock is highly profitable and safe and exhibits many desirable metrics, including strong revenue and EBITDA growth over the last three years. Keysight Technologies represents a low-risk investment in a company underpinned by strong fundamentals.
Cisco Systems (CSCO)
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Cisco Systems (NASDAQ:CSCO) continues to move toward even greater stability, making the stock one of the better undervalued hidden treasures in the market.
The company has traditionally been associated with the networking hardware sector, which is somewhat cyclical. Despite that cyclicality, Cisco Systems has remained among the more consistent tech stocks available to investors. It has continued to pay an increasing dividend, which has gone uninterrupted since 2011. Today, that dividend yields roughly 3.3%, making it quite attractive.
The good news is that Cisco Systems will become even more predictable following its recent acquisition of Splunk. That will increase its software revenues to above 50% of overall revenues, giving the stock lower cyclicality and greater stability.
Cisco Systems is already tagged as one of the affirms best positioned for the continued AI boom. The company has multiple opportunities on that front, as enterprises build out the hardware necessary to handle AI’s growth. There’s a lot to like about Cisco Systems stock overall, especially the fact that it continues to be undervalued.
VeriSign (VRSN)
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There’s a lot of good news for investors concerning VeriSign (NASDAQ:VRSN) and its stock. It is undervalued based on certain metrics and I’ll get to that in a bit. However, first, I’d like to note that the fundamentals are quite attractive as well.
VeriSign released earnings on April 25th. The company beat analyst expectations on both the top and bottom lines. The registry domain and internet infrastructure firm is doing quite well. It offers strong growth, value and some financial metrics that suggest it is a good investment. Like all the other stocks on this list, VeriSign is undervalued based on its P/E ratio.
The company’s strong recent performance is indicative of overall business demand for increased online presence. Companies are registering more domain names, suggesting they desire greater visibility online.
I’m also a big fan of firms that can consistently create value as measured by their capital utilization. VeriSign excels in that regard, providing roughly 5X returns on capital invested by the company.
Amkor Technology (AMKR)
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Amkor Technology (NASDAQ:AMKR) is a semiconductor packaging and testing company located in Arizona. The company is also attractive concerning reassuring narratives. However, I will be looking at it in relation to it being undervalued.
The reason I believe Amkor Technology is undervalued is because the company outperformed the semiconductor sector in 2023. The company was able to do so because of its advanced packaging capabilities. The company is a leader in 2.5D packaging, which integrates multiple circuits in one package. The point to understand here is that advanced AI chips require advanced packaging services.
That suggests as companies like Taiwan Semiconductor (NYSE:TSM) and Intel (NASDAQ:INTC) increase their production in Arizona, Amkor Technology will be extraordinarily well-positioned to take advantage.
Analysts’ consensus belief is that the shares will rise 15% to 33%. Those shares also include a modest dividend yielding just under 1%. Thus, there’s a nice blend of growth and stability there in making AMKR shares attractive overall.
Paycom Software (PAYC)
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Paycom Software (NYSE:PAYC) just beat earnings and revenue guidance for the first quarter. Earnings beats are always a strong catalyst for stock investment.
And while the earnings beat is good news, investors will also be interested to note the expectations around Paycom Software’s share price. Shares currently trade for $177, but analysts expect those shares to rise in value to $221 on average. Some analysts believe it could rise much higher, above $427.
The company provides human resources software to mid-sized U.S. firms And has experienced rapid growth. Over the most recent three years revenue has grown by more than 26%. Meanwhile, Paycom Software’s P/E ratio is well below that of the S&P 500 tech sector.
The stock represents a nice mix of ongoing growth potential and relative undervalue. Software stocks tend to possess strong growth potential overall. Delivery is quick and easy, and once a firm establishes a name, its growth can really take off. Paycom Software is a company that appears to fit that bill.
F5 (FFIV)
F5 (NASDAQ:FFIV) is a stock to consider for any investor seeking value in the cloud security space. By the way, cloud security is a true growth area as AI takes off. More and more enterprises worry about their overall security and the opportunity in this sector will only continue to grow for that reason.
The expectation of continued growth is evident in the fact that F5’s forward P/E ratio is substantially lower than its current P/E ratio. Remember, that’s a sign that analysts believe earnings will increase moving forward.
However, the stock fell recently on the news that the company expects customer budgets to be relatively flat in 2024. The news sent share prices plummeting from $182 down to $165. However, it has since rebounded and is receiving recognition from within its sector.
It will be interesting to see whether customer budget projections remain muted or if the company receives good news on that front. There continues to be a lot of trepidation around all things AI at the moment, leading me to believe that F5’s partners could change their tune.
On the date of publication, Alex Sirois did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
