Analysts believe these seven tech stocks are currently cheap.
While the market has whipsawed up and down over the course of 2020, tech stocks have steadily climbed to new highs. It makes sense that companies that rely on internet connections and cloud technology rather than brick-and-mortar locations have done particularly well this year, and as the pandemic continues to keep people at home, these tech companies should continue to thrive. While many big names in the technology sector have hit all-time highs, there are still plenty of tech stocks with major upside left. This is especially true for companies helping businesses continue operations via the cloud, keeping consumers connected or manufacturing communications technology — all essential services during the pandemic. Analysts believe the following names are seven cheap tech stocks with huge upside going forward.
Box (ticker: BOX)
Companies around the world have been forced to figure out remote work on the fly, and tech stocks like Box are there to help. Box provides businesses with cloud content management, including cloud storage and collaboration tools, which are exactly what companies around the world need at the moment. That’s one of the reasons Craig-Hallum analyst Chad Bennett raised his price target for Box from $24 to $30 at the end of August — a bump that came a day after Box announced excellent second-quarter results. Box enjoyed an 11% bump in revenue compared with the second quarter of 2019, while billings are up 9%, and CEO Aaron Levie noted that “our market leadership enables us to meet the needs of our customers in today’s environment and provides us a large growth opportunity going forward.” Bennett’s price target implies roughly 75% upside.
Compared with competitors benefiting from the work-from-home boom, shares of cloud services provider Dropbox have lagged behind. According to Jefferies analyst Brent Thill, this presents investors with an opportunity to buy shares cheap. In July, Thill upgraded Dropbox from “hold” to “buy” and upped his price target from $22 to $28 — not only because Dropbox benefits from the ongoing work-from-home trend, but also because the company trades at a discount to competitors and “can deliver on margin goals.” Dropbox lived up to Thill’s expectations in the second quarter, increasing its operating margin to 2.7%, compared with -8.5% in the same period last year, while its net income shot up to $17.5 million from a $21.4 million loss. Higher profitability, more people working from home and attractive valuations make Dropbox one of the best cheap tech stocks to watch. A $28 price target implies more than 40% upside.
Medallia provides customer service solutions to businesses through its software-as-a-service platform, making it easy for companies to communicate with customers and improve their experiences. But Medallia also helps those same companies capture feedback from their own employees, providing insights that companies can translate into enhanced productivity and improved bottom lines. This is an important area of expertise, as the sudden shift to remote work has thrown the daily lives of many employees into disarray — and optimizing the performance of remote workers is of growing value to businesses. Needham analyst Scott Berg agrees, and he reiterated his “buy” recommendation at the beginning of September while simultaneously upping his price target from $35 to $40, implying almost 40% upside. With record subscription revenue in the second quarter, Medallia is capitalizing on a business model made to succeed during a pandemic.
Western Digital Corp. (WDC)
Data drives the modern world, but someone needs to store all of that data. That’s where Western Digital comes in, with hard disk drives, solid state drives, data center software and flash memory solutions that are used to store data around the globe. Between the departure of CEO Steve Milligan in March, lower retail sales due to store closures and the decision to cease dividend payouts to focus on paying off a hefty debt load, shares are down more than 40% in 2020. Yet Craig-Hallum analyst Christian Schwab sees potential in Western Digital, especially if the company successfully separates its business into one focusing solely on the hard disk drive business and another dedicated to the flash memory business. This could unlock a lot of value in Western Digital, and Schwab has pinned a $62 price tag — or roughly 70% upside — on Western Digital should this breakup play out.
The next name among these cheap tech stocks with big upside is Plantronics, which makes headphones, headsets, speaker phones and other audio products for conducting business. This is key for companies with remote employees who need to stay connected with one another as efficiently as possible. Plantronics should be enjoying a booming business during the pandemic, yet shares are down more than 50% in 2020 as investors worry about a production backlog hampering profitability, while sales slumped 20.5% year over year in the first quarter. JPMorgan analyst Paul Coster sees hope for Plantronics — and he upgraded the company from “underweight” to “neutral” in mid-September, with a $19 price target, about 47% higher than current prices. Plantronics’ decline has made the stock’s valuation look tempting, though Coster has assumed a wait-and-see approach that investors would be smart to mimic.
Rackspace Technology (RXT)
Going public during a pandemic isn’t easy, given how the market can drag shares down at a moment’s notice — but going public for the second time can be even more difficult. Just ask Rackspace, which went public back in 2008, was taken private in 2016 by Apollo Global Management and is now back on the market as of Aug. 4. The company provides cloud computing services along with old-fashioned managed hosting, giving it a nice balance and allowing Rackspace to offer customers a wide range of services. Perhaps that’s why total bookings grew 107% year over year in the second quarter, while revenue increased 9%. Although the bottom line lagged last quarter due to one-off charges, analysts covering the newly public company are unanimously bullish on Rackspace, and have given the company an average price target of $27.67, offering roughly 47% upside.
Veeco Instruments (VECO)
Companies like Veeco produce the smallest and most essential parts for semiconductors, photonics, data storage and much more. As these technologies proliferate, Veeco reaps the rewards — or at least it should, but the pandemic has thrown Veeco’s business for a loop. In the second quarter, revenue barely budged, and the company posted a net loss of $8.3 million, though that was an improvement of 63% year over year. That said, analysts see a bright future for Veeco once business returns to normal, and Goldman Sachs analyst Brian K. Lee believes that the company will “return to double-digit revenue growth” in the 2021-2022 period.
Seven cheap tech stocks with big upside:
— Box (BOX)
— Dropbox (DBX)
— Medallia (MDLA)
— Western Digital Corp. (WDC)
— Plantronics (PLT)
— Rackspace Technology (RXT)
— Veeco Instruments (VECO)
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