Many tech stocks were crushed this year as rising interest rates drove investors toward more conservative investments. However, panicking and prematurely dumping all your tech stocks is a terrible idea, since many of those beaten-down names could still head higher over the next few years.
Here's a closer look at three tech stocks that could be worth buying in June: Qualcomm (QCOM -2.36%), HP (HPQ 0.69%), and Autodesk (ADSK 2.79%). The first two stocks offer stability, value, and income, while the last provides plenty of room for long-term growth.
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1. Qualcomm
Qualcomm is the world's largest producer of premium smartphone systems on a chip (SoCs) and baseband modems. It also produces radio-frequency (RF) front-end, automotive, and Internet of Things (IoT) chips. Furthermore, its massive portfolio of wireless patents entitles it to a cut of every smartphone sold worldwide -- even if it doesn't use Qualcomm's chips or modems.
Qualcomm still generates most of its revenue from the handset market, but it's been expanding its RF, automotive, and IoT segments to become a more diversified chipmaker. Its patent licensing business also continues to operate at more than twice the pre-tax margins of its chipmaking business.
Qualcomm's revenue rose 55% to $33.5 billion in fiscal 2021, which ended last September, as its chipmaking and licensing revenue rose 64% and 26%, respectively. Its adjusted earnings per share (EPS) surged 104%.
It expects to face some near-term headwinds from slower sales of smartphones and the recent COVID-19 disruptions in China over the next few quarters. However, analysts still expect its revenue and earnings to rise 33% and 37% respectively this year as it expands its auto and IoT businesses.
Qualcomm's growth will likely cool off in fiscal 2023, but its stock looks dirt cheap right now at 11 times forward earnings. It also pays a forward dividend yield of 2.1%. That low valuation and attractive yield could make it a great safe-haven stock to own in this tumultuous market.
2. HP
HP, one of the world's largest producers of PCs and printers, is another undervalued tech stock that generates rock-solid dividends. It trades at a mere eight times forward earnings and pays a forward yield of 2.5%, and it's consistently spent more than 100% of its free cash flow on buybacks and dividends over the past two and half years.
HP's revenue and adjusted EPS increased 12% and 66% respectively in 2021 as stay-at-home tailwinds boosted its sales of PCs for remote work and printers for DIY projects.
But in 2022, analysts expect HP's revenue and adjusted EPS to grow just 4% and 14% respectively as those tailwinds gradually fade. On the bright side, its rebounding sales of commercial PCs and printers -- which slowed to a crawl during the pandemic as many businesses closed down -- should recover and offset its decelerating sales of consumer-facing devices in a post-lockdown market.
HP's top-line growth might remain bumpy over the next few quarters, but its ongoing buybacks -- which enabled it to reduce its outstanding shares by 38% over the past five years -- should consistently boost its EPS. That's probably why Warren Buffett's Berkshire Hathaway bought more than 11% of HP's shares earlier this year -- and why value-seeking investors should follow suit.
3. Autodesk
Last but not least, investors looking for a balanced, cloud-based software play that generates consistent revenue and profits should look no further than Autodesk, the creator of AutoCAD and other design-oriented software.
Over the past decade, Autodesk painstakingly converted its desktop software into subscription-based cloud services. That conversion locked its customers into its sticky ecosystem of AutoCAD, architecture, engineering, construction, manufacturing, media, and entertainment software.
Those subscriptions also enabled Autodesk to generate stable revenue throughout economic downturns while maintaining a wide moat against its smaller competitors. Its revenue rose 16% to $4.39 billion in fiscal 2022, which ended this January, as its adjusted EPS increased 25%.
For fiscal 2023, it expects its revenue to rise 13% to 15% and for its adjusted EPS to increase 27% to 31% -- even after factoring in a $40 million impact from the suspension of its services in Russia. During last quarter's conference call, CFO Debbie Clifford reiterated the company's long-term goals of generating "double-digit revenue growth, non-GAAP operating margins in the 38% to 40% range (compared to 32% in fiscal 2022), and double-digit free cash flow growth on a compound annual basis."
Autodesk's stock isn't a screaming bargain yet at 28 times forward earnings, but I believe it's very reasonably valued for a growing cloud software stock that's poised to generate double-digit revenue and earnings growth for the foreseeable future.
