Analysts might differ on whether we are in a bull market, but the recent increases in stock prices reduced the pool of cheap tech stocks. This probably means the low-hanging fruit found at the height of the 2022 bear market has largely disappeared.
Nonetheless, investors can find bargains, particularly with established tech giants that appear poised for a comeback. With the S&P 500 close to all-time highs, investors might want to consider IBM (IBM -1.05%), Intel (INTC -9.20%), and Qualcomm (QCOM 1.45%). Here's why these three "cheap" tech stocks are potential buys right now.
1. IBM
For much of the previous decade, IBM stock fell into decline as most of its business segments became stagnant amid slowing or negative growth. But this has appeared to shift under current CEO Arvind Krishna, who led the historic $34 billion takeover of Red Hat, helping to transform IBM into a cloud giant.
That move made the company a leader in the hybrid cloud, the infrastructure that facilitates more-seamless integration between private and public clouds. It continued this transformation by spinning off its managed infrastructure business into Kyndryl and acquiring numerous cloud companies to increase its capabilities.
For 2023, IBM forecasts $10.5 billion in free cash flow, an increase of $1 billion for the year. That will help fund its more than $6 billion in annual dividend payments.
The payout, which amounts to $6.64 per share annually, has risen for 28 straight years, and its dividend yield is just above 4%. Thanks to the growth in its cloud business, the payout hikes should continue.
Admittedly, the stock has not risen significantly over the last year. Nonetheless, it sells near multiyear highs, and at a price-to-earnings (P/E) ratio of 22, investors can still buy into a tech recovery and income stream at an affordable price.
2. Intel
As with IBM, the loss of a technical lead wreaked havoc on Intel stock over the last few years. Consequently, rival Advanced Micro Devices took a technical lead in the CPU space, and it faces pressure from Nvidia and others in the data center business.
Still, CEO Pat Gelsinger envisions Intel retaking its technical lead. To that end, he has begun building foundries to support a new business, Intel Foundry Services (IFS). It has attracted clients such as Amazon and Cisco Systems, and chip design companies such as Nvidia have expressed an interest.
On the performance end, it has just released its Emerald Rapids CPUs. While Emerald Rapids might not outperform AMD's latest chips, it represents a considerable improvement that could help Intel meet its goal of technical parity in 2024.
The push to build foundries left Intel with a negative free cash flow of over $12 billion in the first nine months of the year. Still, the third quarter's adjusted free cash flow was $943 million, indicating its finances might finally be improving.
That could partly explain why its stock has risen nearly 60% over the last year. While its forward P/E of 48 might not look cheap, a price-to-sales (P/S) ratio of 4 is well below AMD's sales multiple of 10, indicating that more investors might perceive it as inexpensive as the company recovers.
3. Qualcomm
Qualcomm is another established tech giant looking to recover. Unlike IBM and Intel, it never lost its technical lead, but sales of its market-leading 5G smartphone chipsets fell as consumers became more uncertain about the economy.
Moreover, Qualcomm is in a transition amid a likely decline in importance for the smartphone. To that end, it has also pivoted into the Internet of Things and automotive markets. But the company faces significant competition in these segments, which may have led to doubts about its future.
And 63% of its revenue came from China in fiscal 2023 (ended Sept. 24). As U.S.-China relations have become more tenuous, that dependence on China could raise concerns about Qualcomm's growth.
Indeed, the aforementioned falling sales brought about a 19% revenue decline in fiscal 2023. Still, the free cash flow of almost $10 billion increased amid rising receivables and falling payables. Also, revenue forecasts in the fiscal 2024 first quarter point to a possible return in growth.
As the slump seems to have ended, investors have bid the stock to 52-week highs. And even with the beginnings of a rising stock price, investors can buy Qualcomm at 22 times earnings, a low multiple by historical standards. Assuming demand for its chipsets has finally begun to recover, investors might want to buy this stock before it becomes more pricey.
