Even though there are hundreds of tech stocks on the market, most of Wall Street's attention tends to be focused on just a few of the biggest industry players. That's unfortunate because there are some highly attractive businesses generating strong profits these days, and they aren't named Apple, Tesla, or Nvidia.
Let's look at three of these less-followed investments. Read on for some good reasons to buy Garmin (GRMN 0.29%), Palo Alto Networks (PANW 0.91%), and Pegasystems (PEGA 4.60%).
1. Garmin
There aren't many companies that can produce sustainably strong profits by selling tech hardware, especially through periods of weakening consumer spending. But Garmin's track record has earned it a spot on this short list.
The company recently posted a return to sales growth as second-quarter revenue jumped 6% year over year. Garmin got a boost from high demand for its premium wearable devices, which offset weakness in other parts of its diverse catalog, which includes aviation and marine navigation products.
Management is forecasting continued revenue growth for the rest of the year. Garmin also believes it can generate operating profit of 20% on roughly $5 billion in revenue in 2023. The stock is reasonably priced, too, at four times annual sales, compared to its pandemic peak of closer to seven times sales.
2. Palo Alto Networks
As excited as investors are about Microsoft's potential in the cybersecurity industry, they should be even more thrilled with Palo Alto Networks' prospects. Sure, its $7 billion sales footprint is relatively small, but revenue rose 25% in the fiscal year that ran through late July despite weak spending in the IT world.
The company is seeing plenty of demand for its next-gen security products that are now increasingly relying on powerful artificial intelligence (AI) models.
Palo Alto Networks is newly profitable, and management is targeting further gains here. Its software-as-a-service business is already generating ample cash flow, with free cash on pace to approach 40% of sales in fiscal 2024.
"We continue to make great progress in our financial transformation," chief financial officer Dipak Golechha told investors in mid-August. Shares have trounced the market so far in 2023, but Palo Alto Networks could still deliver great returns to investors who hold the stock over the long term.
3. Pegasystems
Pegasystems has done a great job building out its portfolio of enterprise services over the last few years. That success is translating into a widening client list and higher annual contract spending in 2023. Pegasystems' transition into a subscription-based business is lifting cash flow, too.
The low-code platform provider is aiming to strike a better balance between growth and improved financial metrics such as cash flow and profitability. Over the long term, executives see a long runway for growth as global spending in its core market rises from around $80 billion this year to $120 billion by 2026.
Many tech companies are targeting the digital-transformation software niche, and this list includes deep-pocketed rivals with much larger selling footprints than Pegasystems enjoys. Yet investors might still be happy to own this stock as the company gains ground in this quickly expanding space.
Combined with improving profit margins, success here is likely to power solid annual earnings from Pegasystems even as IT managers become more cautious in their spending.
