Over the last year, digital products and services have been in high demand with more employees and students moving to remote working models but, the strength the technology sector has experienced over the last year has slowly diminished as investors begin looking for better opportunities once the pandemic is behind us.
Some investors are weary of most tech stocks but there are still many opportunities to grow your portfolio if you do your research. The Motley Fool notes that there are three tech companies that are low in cost in relation to their growth potential; Juniper Networks, Alphabet, and Salesforce.
Juniper Networks (NYSE: JNPR) has been overlooked based on the size of their networking hardware compared to companies like Cisco but Juniper “still ranks third in the global router market and fifth in the switch marked” according to IDC.
Initially, Juniper may seem like an unstable investment but over the last two years “the company has been aggressively expanding its portfolio of cloud-ready hardware and services to offset its slower sales of legacy service provider products.”
More cloud providers are upgrading their network which has investors hopeful that Juniper’s cloud-oriented business will continue to grow. The company’s total revenue plateaued at $4.45 billion last year, but has grown by 8% in Q1 2021 “as cyclical demand for its networking hardware and services accelerated again.”
Analysts are expecting Juniper’s revenue to jump 5% and earnings 10% over 2021 but, its stock “trades at 14 times forward earnings and pays a high forward dividend yield of 3.1%.”
Juniper “only spent 63% of its free cash flow on its dividend over the past 12 months” which gives the company “plenty of room to raise its payout as it expands its cloud portfolio and higher-margin software business.”
Alphabet (NASDAQ: GOOGL) is the parent company of Google and has been relying on ad sales as well as the growth of Google Cloud to back its success. Alphabet’s revenue increased by 13% and earnings up 19% over the last year. Stringent pandemic spending has also boosted the company’s “full-year operating margin from 21% to 23%.”
Wall Street forecasts Alphabet’s revenue and earnings to surge another 30% and 51% in 2021 even though its stock is only trading at “24 times forward earnings which seems ridiculously cheap relative to its growth.”
Salesforce (NYSE: CRM) is known as the largest cloud-based customer relationship management (CRM) service provider globally and is anticipated to “double its annual revenue to more than $50 billion by fiscal 2026.”
With the increasing demand for “automated and outsourced CRM solutions, as well as the expansion for the e-commerce, marketing and analytics markets”, Salesforce’s revenue rose 24% and the company’s adjusted earnings 65% this year. The company has come out on top as “big companies continued to tap its cloud-based services to reach customers and optimize their internal operations.”
Analysts are forecasting Salesforce’s revenue to rise 21% by 2022, but in the midst of acquiring Slack (NYSE: WORK), the company’s earnings are expected to decline 30% in lieu of managing the $27.7 billion deal, but “the integration of Slack’s unified communications platform should ultimately improve Salesforce’s cloud services.”
Though Salesforce’s stock price might not appear to be a cost-effective investment, the company’s profits will rebound after fully integrating with Slack. “In terms of revenue, it trades at less than eight times this year’s sales, which makes it cheaper than many other cloud stocks.”
A new level of stock growth is on the horizon for these tech companies as cloud-based services continue to expand. Keep an eye out for these companies, they could end up being worthwhile investments as we prepare for post-pandemic life.
By Surina Nath