If you’re looking for tech stocks to buy under $50, they’re not as easy to come by as you might think.
I did a stock screen of companies with market capitalizations of $2 billion or more in the technology sector. I found 348 possibilities. Of those, 128 were under $50 and 220 were over $50.
It makes sense given the overall success of the tech sector in recent years.
Over the past five years, the Technology Select Sector SPDR Fund (NYSEARCA:XLK) has a five-year annualized total return of 28.2%, 10 percentage points better than the entire U.S. markets.
So, from 128 stocks, I’ve got to come up with 10 options that I think will turn into $100 stocks in short order. To select my 10, I’ll pick one from 10 different industries — preferably ones with lots of free cash flow (FCF).
If I can deliver a portfolio of 10 tech stocks to buy under $50, that will stand the test of time; I will have done my job. They are:
- Viavi Solutions (NASDAQ:VIAV)
- Corsair Gaming (NASDAQ:CRSR)
- Sonos (NASDAQ:SONO)
- Corning (NYSE:GLW)
- Genpact (NYSE:G)
- Vontier (NYSE:VNT)
- Xperi Holding (NASDAQ:XPER)
- Amkor Technology (NASDAQ:AMKR)
- Bentley Systems (NASDAQ:BSY)
- Evertec (NYSE:EVTC)
Now, let’s dive in and take a closer look at each one.
Tech Stocks to Buy: Viavi Solutions (VIAV)
Free Cash Flow: $160 million
FCF Yield: 4.2%
Normally, I would use enterprise value (EV) as the denominator in the FCF yield calculation [FCF divided by EV], but because I’m less than schooled on some of these businesses, I’ll go with market cap.
I’m surprised I’m not familiar with Viavi. It used to be part of JDS Uniphase (JDSU), a designer of optical communication networks with a Canadian connection. In August 2015, JDSU was split into Viavi Solutions and Lumentum Holdings (NASDAQ:LITE).
As a whole, Viavi specializes in fiber optic testing products. And as 5G continues to get rolled out around the world, its products remain in high demand. The calendar year 2021 is turning out to be a sales recovery year for the company.
Investors should expect significant improvements in sales and earnings in the second half of fiscal 2021 and into 2022. And despite the setbacks in fiscal 2020, Viavi’s operating margins remain strong at more than 14%.
Corsair Gaming (CRSR)
Free Cash Flow: $160 million
FCF Yield: 5.3%
I really should get out more often. This is the second tech stock I haven’t a clue what they do, although the name suggests something to do with gaming and casinos.
It turns out that the company makes high-performance gear and technology for gamers, content creators and PC enthusiasts. I could have found that out by asking my wife’s friend’s son, who plays video games for a living, who they were.
In the latest fiscal year (2020), Corsair had $1.7 billion in revenue shipping products to more than 75 countries worldwide. It controls major market share in several different markets, including peripherals and PC components. Since its founding in 1994, it’s shipped more than 190 million products around the world.
In 2020, profits went through the roof. Its adjusted operating income grew 211% to $205 million, or 12% of sales. In 2021, it expects sales to be between $1.8 billion-1.95 billion and an adjusted operating income between $215 million-230 million.
Moreover, its net debt of $197.4 million is a very low 6% of its market cap of $3 billion.
Collectively, I’m glad I found out about Corsair because it has a lot of potential.
Tech Stocks to Buy: Sonos (SONO)
Free Cash Flow: $230 million
FCF Yield: 4.4%
Finally, a company I’ve actually heard about and know what it does. Sonos went public in August 2018 at $15 per share. It seemed the maker of smart speakers was destined to remain in a five-dollar range of its IPO, not moving above $20 until November 2020.
Of course, growth and profits never hurt matters.
In Q1 2021, Sonos reported sales of $646 million, 12% higher over last year, excluding currency. On a non-GAAP basis, it earned $153.2 million in the first quarter, 75% higher than Q1 2020.
As CEO Patrick Spence said about its results, it was the best quarter of its 18-year history. And in fiscal 2021, Sonos expects major growth on the top and bottom lines.
Sonos started slowly as a public company, but it’s coming on like gangbusters. With this much growth and a 4.4% yield, you’re getting growth at a reasonable price.
Free Cash Flow: $800 million
FCF Yield: 2.3%
If I’m not mistaken, Corning is both the largest and oldest company on this list. Founded nearly 170 years ago, the $35-billion market cap has changed quite a bit in that time.
All five of the company’s segments experienced growth in Q4 2020, with Specialty Materials and Environmental Technologies delivering the best results with 20% and 19% increases in sales, respectively. Overall, sales increased 6% in the quarter to $841 million. For all of 2020, they declined by 3%.
On the bottom line, it experienced similar results to its sales numbers in the fourth quarter. Profits were much better in the final quarter of 2020 than they were for the entire year.
In Q1 2021, it expects sales of $3.1 billion at the midpoint of its guidance, 24% higher than in Q1 2020. In terms of profits, it expects to earn 42 cents in the first quarter, more than double earnings per share a year earlier.
Overall, Corning appears to be doing just fine after 170 years. And the 2.1% dividend yield definitely doesn’t hurt either.
Tech Stocks to Buy: Genpact (G)
Free Cash Flow: $500 million
FCF Yield: 6%
When it comes to free cash flow yields, I consider anything over 8% value territory. Genpact sits right in the middle of the fair value range between 4% and 8%. That’s an excellent thing.
Genpact got its start in 1997 as a business unit of General Electric (NYSE:GE). In 2005, Genpact was hived off from GE. Two years later, it became a public company. And in 15 years, it’s grown its revenues from less than $500 million to $3.7 billion at the end of 2020.
As a business process management solution provider, helping companies digitally transform their businesses is one of its biggest tasks in 2021. In March, the company announced that it had extended its partnership with Envision Virgin Racing to help the all-electric Formula E racing team continue its digital transformation.
As a whole, business was good in 2020, with revenues up 6% excluding currency and adjusted operating income rose 5% on the year.
You won’t get rich owning Genpact, but it will deliver fairly consistent returns over the long haul. It will let you sleep at night.
Free Cash Flow: $660 million
FCF Yield: 12.4%
Vontier is the second-consecutive spinoff on my list of 10 tech stocks. Fortive (NYSE:FTV) spun it off in October 2020. Fortive shares got two shares of Vontier for every five held in the parent.
Vontier is made up of two operating units: Mobility Technology Products and Diagnostics & Repair Technologies Products. Approximately 70% of its business is in North America, with the rest of the world accounting for the remaining 30%. It has strong gross margins above 40% and adjusted operating margins of approximately 20%.
You’ll notice the high FCF yield. Vontier converts more than 100% of its income to free cash flow. In 2020, it converted 192% of its net earnings to free cash flow. It plans to use some of it to make acquisitions.
It feels it can capture a significant piece of the $27 billion mobility market in the years to come. It’s got a much better shot independent of Fortive.
Tech Stocks to Buy: Xperi Holding (XPER)
Free Cash Flow: $370 million
FCF Yield: 15.7%
I learn something new every day writing about stocks. I’ve learned a ton writing this particular gallery. It shows I need to spend more time reading up on tech stocks.
Recently, a bunch of ads has turned up from my local cable company advertising their new TiVo Streaming. It dawned on me that I’d lost track of the company and its over-the-top (OTT) streaming device.
It turns out that TiVo and Xperi merged in June 2020 in an all-stock transaction that saw TiVo shareholders get 53.5% of the combined company and Xperi shareholders the remaining 46.5%. TiVo shareholders received a 15% premium based on the 90-day volume-weighted average share price before its December 2019 announcement.
Together, the business continues to drive growth from TiVo, Pay-TV, and its Connected Car solutions. It will also continue to benefit from Xperi’s media and semiconductor intellectual property (IP) licensing platform generated more than $8 billion in revenue over the past 20 years.
I’ll be keeping an eye on this one. It could be a diamond in the rough.
Amkor Technology (AMKR)
Free Cash Flow: $220 million
FCF Yield: 3.8%
Amkor provides outsourced semiconductor packaging and test services through its facilities in China, Japan, Korea, Portugal, and other parts of Asia. It provides these services to integrated device manufacturers (IDMs), “fabless” semiconductor companies, OEMs, and contract foundries.
It’s been doing so since 1968. In 2020, it had $5.1 billion in sales, up 25% from 2019. Between 5G, the Internet of Things (IoT), Automotive, and High-Performance Computing, Amkor has its hands full of demand.
In 2020, it had an operating income of $457 million, almost double the amount in 2019, and its highest profit in the past five years. The same scenario played out for free cash flow.
Over the past five years, it’s fortified its balance sheet, reducing its net debt from $921 million in 2016 to $322 million in 2020.
It is well-positioned to take advantage of some of the highest-growth areas in the semiconductor industry.
AMKR stock is up 54% year-to-date and 146% over the past year. It’s definitely on a roll.
Tech Stocks to Buy: Bentley Systems (BSY)
Free Cash Flow: $240 million
FCF Yield: 1.7%
Bentley Systems and its customers are likely pleased about Joe Biden’s infrastructure plans. After all, the company creates software for infrastructure-related professionals, including engineers, architects, geospatial professionals, planners, contractors, IT managers; the list goes on.
If a bridge, highway, airport, and all the other infrastructure assets in this world are getting built, there’s a good chance Bentley Systems’ software is involved.
Founded by a group of brothers named Bentley in 1984, it’s grown tremendously over the past 36 years. In 2020, sales grew 8.8% year-0ver-year to $801.5 million with subscriptions accounting for 85% of its sales. On the bottom line, it had an adjusted net income of $192.7 million, 43% higher than a year earlier.
BSY stock is up 23.0% YTD and 126% from its September 2020 IPO price of $22, including a 52.2% first-day return.
In addition to its IPO in September 2020, it also made a secondary sale in November. After the sale, the Bentley family-controlled 66.4% of the votes.
I’m a big fan of founder-led companies. It doesn’t hurt that it participates in an industry where software is essential to work on time and budget. The need won’t go away anytime soon.
Free Cash Flow: $150 million
FCF Yield: 5.1%
Based in Puerto Rico, Evertec operates a full-service transaction processing business in 26 Latin American countries, serving some of the leading financial institutions, merchants, corporations, and government agencies in the region.
The company’s largest shareholder is Popular Inc. (NASDAQ:BPOP), which operates Banco Popular in Puerto Rico and the Virgin Islands and other parts of the Caribbean and Central America. In the U.S., it operates as Popular Bank. It owns 16.2% of Evertec.
In recent years it’s done a good job lowering its leverage. In 2016, Evertec’s net debt was 3.3x adjusted EBITDA. In 2020, it was 1.9x, 42% less than five years earlier. Over this period, its revenue’s grown by 7% per year with its Business Solutions segment accounting for 42% of its revenue. None of the four operating segments accounts for less than 15% of overall revenue.
In August 2020, Evertec announced that it was exploring its strategic options, including a potential sale. Several buyers would be interested in the Latin American operator, including Fiserv (NASDAQ:FISV). Nothing’s developed since then.
Whatever happens, it won’t come cheap. In 2021, it expects to grow revenues and adjusted earnings per share between 4-8%.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
View more information: https://investorplace.com/2021/04/10-tech-stocks-to-buy-for-under-50/