The technology sector has been red-hot in 2018. Thankfully, even in times like these, there are always great stocks for investors to buy if they're willing to look for the good values among the bunch.
Excellence in PCs and printers
Ashraf Eassa (HP): HP isn't the first name that comes to mind when the phrase "hot tech stock" is uttered. Indeed, last quarter, roughly 62.5% of the company's sales came from its "personal systems" business, which mainly consists of personal-computer sales, and the remainder came from its printing business (HP sells printers and related supplies, like ink cartridges).
Yet HP stands out because it's managing to execute extremely well in the markets that it plays in. Last quarter, the company generated $14 billion in sales, which was up 13% year over year. HP's net income hit $1.1 billion, which was no less than an 89% year-over-year boost, and earnings per share were up 94%.
Although HP has certainly benefited from an improving personal-computer market, the company has also been gaining share against its competitors, which has further benefited its financial results.
"In the first calendar quarter, we outgrew the PC market by 4.6 points, achieving 22.7% share," HP CEO Dion Weisler said on the company's earnings call in May.
HP is also a major vendor of printing products, with revenue in this segment growing 11% year over year last quarter, thanks to a 13% increase in printer hardware shipments and an 8% increase in printer supplies (ink cartridges, toner, and paper). The story seems to be the same here as it is in personal computers -- the company's managing to gain share.
"The overall print hardware market grew 1.7% in the first calendar quarter and we grew faster than the market, adding 1 point of share," Weisler explained in May. HP's ability to capture share in the main markets where it participates is a sign of a well-run organization.
To be clear, HP isn't a stock for investors looking for ultrafast growth -- in fact, analyst estimates call for revenue growth to cool from around 10.7% in 2018 to just 1.2% in 2019.
However, it's a company that's executing well in its markets, it's profitable, and pays a solid dividend (as of writing, HP's shares offered a dividend yield of 2.42%). It's also a cheap stock, trading at just 10.74 times analyst EPS estimates for 2019.
If those characteristics sound appealing to you, then HP stock should be worth a look.
Betting on subscriptions
Tim Green (Cisco Systems): Shares of networking hardware company Cisco have soared nearly 40% over the past year. Improving performance was one driver behind the gains; Cisco returned to revenue growth in its fiscal second quarter after two years of declines. The tax bill passed late last year also contributed. Along with its second-quarter results, Cisco announced a tax-related bonanza for shareholders, boosting its dividend by 14% and adding a whopping $25 billion to its share repurchase program.
Cisco is betting that subscriptions and other forms of recurring revenue will drive its growth in the years ahead. Faster-growing businesses like security are skewed toward software and subscriptions, and even the core switching and routing businesses are shifting business models. Cisco's latest Catalyst 9000 switching platform is subscription-based, with the majority of customers choosing the most advanced subscription package, and the company plans to roll out a similar strategy for its routers.
The subscription push could help smooth out Cisco's revenue, which can be prone to volatility when large customers delay purchases. It could also increase the switching costs associated with Cisco's products, as more products and services are bundled together in subscription packages.
I wouldn't expect much more than slow growth from Cisco, but that doesn't mean it can't be a solid investment. The stock sports a dividend yield above 3% and trades for about 16.5 times the average analyst estimate for full-year earnings. In a market full of expensive tech stocks, Cisco looks like a relative bargain.
The Amazon of China
Brian Feroldi (JD.com): The gradual retail shift to e-commerce is the gift that keeps on giving for investors. While a plethora of stocks allow investors to take advantage of the sea change, one of my favorites to buy right now is JD.com.
JD isn't a well-known business in the U.S., but it's actually the largest seller of goods online in China. However, unlike its key rival Alibaba (NYSE:BABA), JD has gone through the painstaking process of building out its own distribution system. While this has resulted in huge capital needs and minuscule margins, I think that JD is well-positioned to dominate over the long term. My reasoning is that JD has a much better control over its product quality than Alibaba. Alibaba is just a platform for connecting buyers and sellers (much like eBay is in the U.S.), so it's rife with counterfeits. By contrast, JD's complete control over its distribution network should help it earn trust from its consumers in the same way that Amazon.com has in the U.S.
At the same time, JD.com's stock isn't enjoying much of a premium valuation right now, given investor fears over a growing trade war with China. JD is currently trading for less than 1 times sales and for about 31 times forward earnings. That's not all that expensive for a company that just posted revenue growth of 44% and EPS growth of 750%.
Investing in Chinese businesses certainly carries more risk than buying shares of U.S. companies, but I think JD's growth potential and cheap valuation make it a great stock for tech investors to buy today.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ashraf Eassa has no position in any of the stocks mentioned. Brian Feroldi owns shares of AMZN and JD.com. Timothy Green owns shares of Cisco Systems. The Motley Fool owns shares of and recommends AMZN and JD.com. The Motley Fool recommends EBAY. The Motley Fool has a disclosure policy.