Although the technology sector has been hard-hit by macro headwinds, its long-term prospects look impressive. Therefore, fundamentally sound tech stocks Gartner (IT), Ricoh Company (RICOY), and Jabil (JBL) could be worth buying now.
The tech sector selloff amid the Fed's consecutive rate hikes. Moreover, layoffs have increased in the industry as recession fears are widespread. However, given the solid long-term prospects of the industry, I am bullish on fundamentally sound tech stocks Gartner, Inc. (IT), Ricoh Company, Ltd. (RICOY), and Jabil Inc. (JBL).
The industry is evolving rapidly with the incorporation of advanced technologies like artificial intelligence (AI). The artificial intelligence chip industry is expanding due to the increased demand for smart homes and smart cities.
The artificial intelligence chip market is projected to grow at a compound annual growth rate of 39.8% from 2020 to 2027. This growth is attributable to companies developing new technologies and conducting research and development to expedite AI training and inference and boost efficiency.
According to Gartner, spending is expected to reach $4.5 trillion in 2023, a 2.4% increase from previous years.
John-David Lovelock, a distinguished VP analyst at Gartner, said that while inflation is devastating consumer markets and contributing to layoffs at B2C companies, enterprises continue to increase spending on digital business initiatives despite the world economic slowdown.
The global market for tech support services is expected to grow at a 5.3% CAGR and reach $111 billion by 2033.
The Technology Select Sector SPDR ETF (XLK) has returned 8.1% over the past three months, indicating that investors are interested in tech stocks.
IT, RICOY, and JBL could be worth owning now.
Gartner, Inc. is a leading provider of research and analysis on the global information technology industry.Gartner, Inc. is a leading provider of research and analysis on the global information technology industry. The company offers insights, advice, and tools to help IT professionals make more informed decisions about technology. Gartner is headquartered in Stamford, Connecticut, and has more than 8,000 employees in over 100 countries.
It operates as a global research and advisory company. The company operates three broad segments: Research; Conferences; and Consulting.
Its gross profit margin of 69.07% is 40.4% higher than the 49.19% industry average, while its EBITDA margin of 24.01% is 114% higher than the industry average of 11.22%.
During the fourth quarter of the fiscal year 2022 that ended on December 31st, the Information Technology company's revenues increased by 15.2% from the previous year to a total of $1.18 billion. The company's adjusted EBITDA also saw an increase of 37.1% year-over-year to $421 million, and the adjusted net income increased by 18.3% to $297 million. The company's adjusted EPS was $3.70, which is a 23.7% increase from the previous year.
Its revenue is expected to increase by 10.8% year-over-year to $6.42 billion in 2024. Its EPS is expected to grow 16% year-over-year to $10.94 in 2024. It surpassed EPS estimates in all four trailing quarters. Its shares have gained 25.2% over past nine months to close the last trading session at $334.60.
The POWR Ratings reflect a promising outlook for the stock, with an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
IT has an A grade for Quality and is ranked #3 out of 9 stocks in the A-rated Outsourcing - Tech Services industry. For more POWR Ratings on Growth, Value, Stability, Sentiment, and Momentum for IT, click here.
is a Japanese multinational imaging and electronics company. It was founded by the RIKEN zaibatsu on 6 February 1936 as Riken Sensitized Paper (理研感光紙株式会社, Riken Kankōshi Kabushiki-gaisha).
Ricoh Company, Ltd., a Japanese multinational imaging and electronics company, was founded by the RIKEN zaibatsu on February 6, 1936, as Riken Sensitized Paper (理研感光紙株式会社, Riken Kankōshi Kabushiki-gaisha).
RICOY is a company headquartered in Tokyo, Japan that is engaged in integrated domestic and overseas manufacturing services. The company has three segments: Imaging & Solutions; Industrial Products; and Other.
RICOY has paid dividends for nine consecutive years and its dividend payouts have grown at 22.9% CAGR over the last three years. However, its four-year average dividend yield is only 2.1%. Its current dividend translates to a 3.14% yield.
RICOY's trailing-12-month asset turnover ratio of 1.06% is 73.9% higher than the industry average of 0.61%.
RICOY's sales increased 23.3% year-over-year to 555 billion ($4.07 billion) for the third quarter that ended December 31, 2023. Also, its operating income came in at 16.10 billion ($120 million), up 27.8% year-over-year. Its profit and EPS came in at 12.50 billion ($91.88 million) and 20.56, up 4.2% and 11.6% year-over-year respectively.
The consensus revenue estimate of $16.61 billion for the fiscal year 2024 indicates a 4.5% increase year-over-year. Its EPS is expected to grow 13% year-over-year to $0.78 in 2024. Over the past six months, the stock has gained 6.3% to close the last trading session at $7.93.
RICOY's strong prospects are shown in its POWR Ratings. The stock has an overall rating of A, meaning a Strong Buy in our proprietary rating system. It has an A grade for Growth and a B for Value and Stability.
RICOY is the top-ranked stock in the Technology Hardware industry out of 42 stocks. To see POWR Ratings for Sentiment, Momentum, and Quality for RICOY, click here.
JBL provides products and services for manufacturing in Electronics Manufacturing Services and Diversified Manufacturing Services segments.
JBL has paid dividends for 16 consecutive years with a four-year average dividend yield of 0.75%. However, its current dividend translates to a 0.38% yield.
JBL has a trailing-12-month ROCE of 41.31%, which is 767% higher than the 4.75% industry average. Additionally, its trailing-12-month ROTA of 4.77% is 209.7% higher than the 1.54% industry average.
JBL's net revenues were $9.64 billion for the fiscal first quarter that ended on November 30th, 2022, an increase of 12.5% from the previous year. Its gross profit also increased by 10.1%, amounting to $743 million. Furthermore, its operating income saw a 3.4% increase year-over-year, amounting to $362 million.
Analysts expect JBL's revenue to increase 3.1% year-over-year to $34.51 billion in 2023. Its EPS is estimated to rise 9.5% year-over-year to $8.38 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 59.8% and closed the last trading session at $84.04.
JBL's POWR Ratings reflect its strong fundamentals. With an overall B rating, it indicates a Buy in our proprietary rating system. Additionally, it has an A grade for Momentum and B for Value, Sentiment, and Quality.
JBL is ranked #9 out of 80 stocks in the Technology - Services industry according to POWR Ratings. For more information on JBL's Stability and Growth, click here.
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IT shares were trading at $337.63 per share on Wednesday morning, up $3.03 (+0.91%). Year-to-date, IT has gained 0.44%, which is lower than the 4.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi KumariRashmi Kumari is a writer and editor who has worked in the publishing industry for over 10 years. She has a bachelor's degree in English from the University of Delhi and a master's degree in publishing from New York University. Rashmi has written for a variety of publications, including The Hindu, The Times of India, and India Today.
Rashmi's passion for capital markets, wealth management, and financial regulatory issues led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.