It might not be a case of going from zero to hero, but the tech sector is rebounding smartly in 2023 following its drubbing last year. As investors shifted to more defensive positions, the sector tumbled hard, and many previous highfliers were in the dumps.
However, this year is shaping up as a different story, with tech stocks rallying to become one of the best-performing sectors in the early going. Sure, the new year is just one month old, but the gains are a welcome reprieve for many investors.
That should make now an excellent time to bring a set of hungry eyes to the sector, and there are two tech stock investors can confidently buy in February.
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1. Taiwan Semiconductor
Lately, it has been either feast or famine for semiconductor stocks. Last year, the industry was working through a chip shortage brought on by the remnants of the pandemic that helped snarl supply chains; now, it seems chipmakers did their job too well and are suffering from a chip glut instead.
Taiwan Semiconductor (TSM 2.84%) is the leading contract chip manufacturer for global tech companies, including Advanced Micro Devices, Apple, and Nvidia. TSM, as it is commonly called, is a pure-play foundry that hands off all the heavy-lifting design work to its customers. The company's sole focus is on chip production instead.
Yet, as the industry works through one of the most severe imbalances between supply and demand in memory chips in over a decade, TSM is confident the glut will ease in the back half of 2023, depending on the market. Smartphones could take longer, and data center chips could resolve themselves sooner. But with continued investment in next-gen chips that exceed what the competition is producing, TSM should be able to ensure its tech customers are always in a steady state of demand.
TSM stock is also comparatively cheap, going for around 13 times trailing and estimated earnings and at a fraction of its expected earnings growth rate. With a healthy dividend yielding 1.9% annually, this foundry stock is one to buy today.
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2. Cisco Systems
Networking hardware and software giant Cisco Systems (CSCO 0.37%) also struggled last year with supply chain disruptions, part shortages, and higher freight costs that hit its secure and agile networks unit, which represents nearly half of its revenue.
Yet its fiscal first-quarter earnings report for the October-ending period suggested the worst of the situation was behind it as revenue jumped 12%, with even its end-to-end security and optimized applications segments enjoying new growth. Cisco will be reporting second-quarter results soon, and while investors should get a sense of whether the momentum will continue, there are reasonable indications it will.
Despite Cisco's core hardware business being highly commoditized, the tech giant has invested heavily in its software division, which offers higher growth. It has long maintained the full gamut of emerging trends such as hybrid cloud, webscale, Wi-Fi 6 and 400-gig solutions, hybrid work, cloud-native architectures, cloud security, 5G deployment, full-stack observability, the Internet of Things, and edge computing. These markets will drive Cisco's business in the future.
Cisco raised its full-year revenue outlook growth of 6.5% as it transitions to more software and subscription-based recurring revenue, and it believes it can achieve between 5% and 7% annual sales growth over the long term. It also forecasts that adjusted earnings will see up to 7% growth this year, and the market values it at just 13 times those expected profits, making Cisco's stock attractive.
Cisco has paid a dividend since 2011 that today offers an attractive forward yield of 3.2%. While the tech stock may not be the growth company it was during the 1990s, it has a substantial cash and short-term investment hoard of almost $20 billion that gives it a cushion and measure of stability, making it a solid pick nonetheless for investors looking for capital appreciation, reliable dividend payments, and stock buybacks.
