Investors in tech stocks can get nervous as the US-China trade war develops into a full technical war. However, there are still many solid technological stocks that are well insulated from headwinds and that trade with attractive valuations.
Let's look at three tech stocks that are "no brains" investment opportunities – Cisco (NASDAQ: CSCO) Apple (NASDAQ: AAPL) and Infinera (NASDAQ: INFN) .
The share of Cisco, the world's largest manufacturer of network routers and switches, has fallen about 1[ads1]0% over the past two months. Most of the fall happened in mid-August when the company followed up a solid fourth quarter financial report with soft guidance for the first quarter.
Cisco's revenue and adjusted revenue increased 7% and 20% respectively in fiscal year 2019. But for the first quarter of fiscal 2020, it expects revenues to be in the flat to a 2% higher range, and that the adjusted EPS will increase 7 from year to year. For the entire financial year, analysts expect revenue to rise 2% and revenue to rise 8%.
Cisco faces tougher year-over-year comparisons in fiscal year 2020, in addition to reducing corporate spending in China, the United States and the United Kingdom due to macroeconomic headwinds such as the trade war and Brexit. However, the higher-growth security and application units (which accounted for 16% of 2019 revenue) still generate double-digit sales growth. In the fourth quarter, 70% of software revenue came from sticker subscription, generating only a small portion of sales from China. It also expects gross margins and operating margins to remain stable in fiscal policy in Q1, although revenue growth is slowing.
Cisco still has some irons in the fire. It ended the previous quarter with $ 33.4 billion in cash and equivalents, and it was recently agreed to buy Acacia Communications (NASDAQ: ACIA) – one of the vendors – in a move to cut costs and help it upgrade its offerings for data center network devices. The future dividend yield of 2.9% and the future P / E ratio of 13 should also place a floor below this unloved stock until the long-term headwind disappears.
Apple is not as innovative today as it was under the late Steve Jobs. It's also still dependent on the iPhone, which generated 48% of revenue last quarter. But under CEO Tim Cook, it's aggressively expanding the service's ecosystem (21% of sales) with new platforms like Apple Arcade and Apple TV + – which could generate more revenue per user as hardware sales decline.
Progress in the Portable Market with Apple Watch and AirPods. Cook claimed that Apple's portable sales increased "well over 50%" annually in the last quarter, accelerating from segment growth of "close to 50%" in the second quarter. HomePod also claimed 5% of the US smart speaker market in June, according to research firm CIRP.
The first reception for the new iPhone 11 has also been warm – even in China, where Apple is struggling with local competition, economic downturn and trade war-related tensions. Cook recently told German newspaper Bild that the sale of the iPhone 11 was off to a "very strong start."
Analysts expect Apple's revenues and revenues to rise 5% and 9% respectively next year – solid growth levels for a stock that trades at 18 times future earnings. It also pays a dividend with a future return of 1.8%.
More importantly, Apple ended the previous quarter with $ 210.6 billion in cash and the like – leaving plenty of room for share repurchases, dividend increases, acquisitions and new product investments. The cash cushion, along with the strength of the brand, makes Apple one of the safest technological stocks to buy in the long term.
Infinera is not as well known as Cisco or Apple. The manufacturer of optical transmission equipment mainly sells wave division multiplexing (WDM) systems, which allow Internet providers and telecommunications to increase the capacity of their existing networks without laying down additional fiber – a cost-effective alternative for carriers that meet the bandwidth demand that comes from the growing use of cloud-based services.
Still, Infinera's share price plunged from $ 12 in May 2018 to about $ 3 in July 2019. There were two major reasons for that decline. First, the demand for long-range WDM systems dried, with Infinera generating most of its revenue, while service providers focused on shorter-range WDM solutions such as Metro and Data Center Interconnection Systems (DCI). Second, the forecasts after the acquisition of Coriant – a smaller rival that produces shorter-range WDM solutions – were initially too high.
However, the stock has fallen by about 70% over the past three months as investors realized that the cyclical business was about to bottom, and that concerns about Coriant were likely excessive. Last quarter, Infinera sales increased 47% annually, compared with 46% growth in the first quarter. It is projected that the figure will accelerate again to somewhere in the region of 60% to 70% in the third quarter, and that gross margins will expand in order.
Infinera remains unprofitable, but expects the synergies with Coriant to lift its free cash flow and adjusted earnings back to positive levels in the fourth quarter. If it achieves these goals, the stock could accumulate much higher – since the current market capital is less than this year's sales.