Tech Stocks Now Offer Good Value Here

Mark Hake

This is not financial advice and you should not rely on my analysis to buy or sell any stock. I am not undertaking to induce you to buy or sell any securities. I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

A number of technology stocks now offer good value to investors now. As a result, value investors are looking to take positions in an array of high-tech stocks that look to be bargains.

Microsoft

For example, Microsoft (MSFT), which reported stellar Q2 results, including a 34.3% free cash flow (FCF) margin, is now trading at a bargain valuation.

The stock is now down over 4.5% in the past week and is off almost 21.5% YTD. As a result, MSFT is at just 22x forward earnings forecast for the year ending June 2023.

That is a very low price-to-earnings (P/E) multiple for Microsft stock. In fact, Morningstar reports that its average forward P/E multiple in the past 5 years has been 28.13x.

This implies that the stock could rise over 27% just to get to an average valuation metric. That would put its price at $334 per share, up from $262.97 today (Aug. 30).

Alphabet

In addition Alphabet (GOOG) stock is also very cheap. The stock is off 5% in the last week and down over 24% in YTD. That puts it at 21.1x earnings forecast for this year and just 18.5x for 2023.

And again, these multiples are well below the stock's 5-year average forward multiple. Morningstar reports that this has been 26.25x.

That implies GOOG stock could rise 24.4% if it were to trade at this valuation even for 2022's earnings. That would put it at $136.91, up from $110.06 today (Aug. 30).

Netflix

Another example is Netflix (NFLX) stock, which is off 3.59% in the last week and is now down almost 63% YTD.

Its forward multiple for 2022 is 21.8x and for 2023 its multiple is just 20.6x for the year ending Dec. 2023.

By comparison, the stock's 5-year average multiple has been 71x, according to Morningstar. So, even if the stock rises to half of that metric, it could be up 62.8%.

In fact, at just 30x earnings for 2023, the stock could potentially rise 45.6%. This stock is very undervalued from a historical standpoint.

The company recently reported that it had arrested the decline in global memberships in Q2. That was a major reason why the stock took such a hit. Moreover, for Q3 the company expects to see a 1 million consecutive quarterly growth in memberships over Q2. If that happens, investors might expect to see NLFX stock get a rerating.

Bottom Line: These three tech stocks look particularly undervalued due to their tumble in the past week.

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Mark R. Hake, CFA writes articles at InvestorPlace.com, Barchart.com, Medium.com, and Newsbreak.com as well as a Beehiiv free newsletter on stocks and cryptos.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

Phoenix, AZ
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