Many tech stocks have soared recently, but there are still bargains to be found at the corner of Wall Street and Silicon Valley. Here are two recent underperformers that deserve better, making them no-brainer buys in July.
Key Data Points
HP is still a cash machine
Personal computer systems veteran HP Inc. (HPQ 4.45%) can't catch a break on the stock market. Share prices are down 35% since last November. They trade at the bargain-bin valuation of 9.8 times earnings and 9.0 times free cash flows. In other words, HP is a richly profitable cash machine, but its stock isn't getting any love from traders and investors.
I know that the company isn't always meeting Wall Street's expectations. May's second-quarter report, for example, fell short of the analyst community's consensus earnings target, despite a stronger top-line revenue performance than expected. Printing sales were down but HP sold plenty of computers, especially in the category of commercial-grade workstations.
When Wall Street gives you lemons... Image source: Getty Images.
Looking ahead, HP expects rocky results in the second half of its fiscal year. The company is also ramping up its manufacturing capacity in places like Vietnam, Thailand, and North America in an effort to mitigate the costs of border-crossing trade tariffs. That's a smart long-term plan, but a costly one in the building phase.
Yet, HP's management sees full-year free cash flow of at least $2.6 billion, down from $3.3 billion in fiscal 2024. It's a step down, but largely due to the costly manufacturing transition -- and that's an investment that should boost long-term profits.
So I think the market has overreacted to HP's recent financial struggles. You can pick up a few shares at a fantastic discount right now, while HP is spending big money on a more robust manufacturing system. It's alright if it takes a few years to fully realize the positive effects of this move. Investing is a marathon, not a sprint.
NASDAQ: CRTO
Key Data Points
Criteo could bounce back sooner than you think
Then there's digital advertising expert Criteo (CRTO 2.30%). The French company, which specializes in brand-boosting campaigns and product-sale targets, has taken a 51% price cut since August, 2024. The stock's valuation is similar to HP's, but with an even lower price to free cash flow ratio of 5.6.
Another difference is that Criteo has been crushing analyst expectations across the board for several years. Now, this achievement still involves some very modest growth rates and the occasional dip, since the shaky global economy isn't kind to ad-tech companies. It's hard to find a budget for splashy ad campaigns when nobody is ready to spend money on your goods, you know.
On that note, Criteo's price dip might last a while longer. Between unpredictable tariff policies, the ever-present threat of another inflation surge, and several international conflicts, 2025 looks like a tough year in the advertising sector.
It's hard to beat the rock-bottom valuation you see in Criteo's stock right now. At the same time, the company is applying artificial intelligence tools to its advertising platform, and introduced a brand new auction-style selling model just last month. Management expects this multi-channel tool to work particularly well for retailers. For Criteo, the auctions should result in higher customer satisfaction and more efficient ad-space pricing.
But the economic instability won't last forever, and Criteo's stock is incredibly cheap today. The company also sports a robust cash balance of $286 million and no debt to speak of. Together with consistently robust cash flows, this solid balance sheet allows Criteo (and its investors) the luxury of waiting for better times.
There's no financial crisis going on here. I can't wait to see how the company will perform when it applies the belt-tightening lessons learned in this economy to a healthier market.
