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3 Cheap Tech Stocks to Buy Now

By Leo Sun – Jun 2, 2020 at 8:09AM

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Cisco and two other tech stocks still look cheap relative to their safety and growth.

Investors might be reluctant to buy tech stocks in this volatile market, which faces fierce macro headwinds like COVID-19 and the trade war. The growing digital divide between the U.S. and China also makes it increasingly difficult to invest in companies that straddle both markets.

Nonetheless, there are still plenty of promising tech stocks that trade at low valuations. Let's dig deeper into three of them: Cisco Systems (CSCO -1.41%), Broadcom (AVGO -1.36%), and DouYu International (DOYU -0.99%).

A woman checks a stock chart on a computer screen.

Image source: Getty Images

1. Cisco Systems

Cisco is the world's largest manufacturer of networking routers and switches. It bundles its security, collaboration, and other enterprise software services with those devices to widen its moat and lock in customers.

Cisco generated robust revenue growth last year as more enterprise and data center customers upgraded their networks. However, its revenue dipped over the past two quarters as it faced tougher year-over-year comparisons and sluggish orders amid the trade war and COVID-19.

On the bright side, Cisco only generates a sliver of its revenue from China, and it could pull orders from Huawei if more customers turn against the Chinese tech giant. Data center customers should also continue upgrading their infrastructure to serve the rising demand for cloud services, and its collaboration revenue could continue rising as more people work remotely.

Analysts expect Cisco's revenue to dip 5% and 1%, respectively, before rebounding next year. Cisco has hiked its dividend every year since it started paying one in 2011, currently pays a forward yield of 3.2%, and trades at just 15 times forward earnings -- which makes it a dirt-cheap income stock.

2. Broadcom

Broadcom, formerly known as Avago, is one the largest and most diversified chipmakers in the world. It expanded aggressively through big acquisitions over the past few years, and its top customer is Apple.

Semiconductors being manufactured on a wafer.

Image source: Getty Images.

Broadcom's revenue rose 8% last year, as its adjusted EBITDA -- which excludes its one-time acquisition costs -- grew 14%. It didn't see any "material impact" from COVID-19 during the first quarter, but it still prudently withdrew its guidance for the full year.

Broadcom's data center chip sales could accelerate throughout the crisis as stay-at-home measures boost the usage of cloud and streaming services. Its smartphone chip sales could also pick up in the second half of 2020 as new 5G handsets hit the market. Those tailwinds could offset its headwinds in the industrial and enterprise markets -- and analysts expect its revenue and earnings to rise 4% and 1%, respectively, this year.

Broadcom's growth won't accelerate significantly until the macro headwinds wane, but it currently pays a forward yield of 4.6%, has raised its dividend annually for ten straight years, and trades at just 13 times forward earnings. That high yield and low valuation should limit its downside potential.

3. DouYu International

DouYu is one of the two largest e-sports streaming platforms in China. It serves 158.1 million monthly active users (MAUs), including 56.6 million mobile MAUs and 7.6 million paid users who buy virtual gifts and subscriptions.

DouYu and its rival Huya (HUYA -3.90%) are both backed by Chinese tech giant Tencent (TCEHY -1.31%), the world's largest video game publisher. Tencent took control of Huya earlier this year, spurring rumors that it would merge the two platforms into a single market-dominating platform with over 300 million MAUs.

DouYu's revenue nearly doubled last year and it turned profitable. Its year-over-year revenue growth decelerated to 53% in the first quarter, but it maintained its profitability by improving its monetization efforts, reducing its streamer costs, and utilizing its bandwidth more efficiently.

Wall Street expects DouYu's revenue and earnings to rise 33% and 135%, respectively, this year -- which are explosive growth rates for a stock that trades at just 18 times forward earnings. Investors seem wary of the recent threat to delist Chinese stocks, but it still looks like an undervalued growth play on China's booming gaming and live streaming markets.

Leo Sun owns shares of Apple and Tencent Holdings. The Motley Fool owns shares of and recommends Apple and Tencent Holdings. The Motley Fool recommends Broadcom Ltd and HUYA Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
$40.00 (-1.41%) $0.57
Broadcom Limited Stock Quote
Broadcom Limited
$444.01 (-1.36%) $-6.12
HUYA Stock Quote
$2.22 (-3.90%) $0.09
DouYu International Holdings Limited Stock Quote
DouYu International Holdings Limited
$1.00 (-0.99%) $0.01
Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
$33.82 (-1.31%) $0.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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