Tech Deck Tricks: 7 Tech Stocks To Buy With Superior Fundamentals

Once upon a time, if investors were looking for good tech stocks to buy, they would look for companies with the best growth history, regardless of profitability.

That is not the case in 2022. Investors want good returns and profits. These days, one cannot be accepted without the other.

The Australian Financial Review recently discussed the technology gap between "winners and losers".

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"The narrative is split between winners and losers," Chris Bainbridge, founder and director of portfolio management at Discovery Funds Management, told AFR. "We think this adjustment is one of the best things that could happen to a number of tech companies as it imposes financial discipline that hasn't existed in recent years."

Portfolio managers believe that the current market is a great time to pick up stocks. The get index no longer works.

Well, what can it be?

A good place to start is the income statement, balance sheet, and cash flow statement. If all three look positive and the ratings aren't very high, you might like something.

In this article, I'll use three metrics: operating profit, low net debt, and free cash flow (FCF) to find seven tech stocks to buy on a super-fundamental basis.

tape

Agent

cost

MSFT:

Microsoft

$253.25

PayX:

Paycheck:

121.61 USD

LRCX:

look for lam

$426.76

CSCO:

Cisco System

44.47 USD

test

clip

110.53 USD

FIREPLACE

Jack Henry & Co

194.41 USD

lamp

Lumintum Holdings

$78.44

Microsoft (MSFT)

Source: NYCStock / Shutterstock.com

Microsoft ( NASDAQ:MSFT ) is a tough investment to critique.

After all, the tech industry has one of its best CEOs in Satya Nadella, who was recently named Barron's Best CEO of 2022. Since Nadella took over as CEO in 2014, MSFT's stock has returned 2.5 times that of the S&P 500 . 27.9%.

"Nadella's groundbreaking bet on cloud computing is also a hit. Microsoft is now No. 2 in the market, which Wedbush Securities expects to reach $1 trillion in the next decade. "Microsoft Azure has earned a place in its services field," said Tae Kim, lead Web partner. Barron, Amazon, controlled 21% of the cloud market last year, according to Gartner.

Story continues

As for its financial statements, it ended fiscal year 2022 (end of June) with $57.73 billion in net cash, $83.38 billion in operating income, and $65.15 billion in the International Monetary Fund.

Despite being one of the best technology stocks to buy and hold over the long term, the FCF Franc has a respectable 3.4% yield.

This is a mandatory requirement.

Paychex (PAYX)

Source: Tada Images / Shutterstock.com

In August, Paychex (NASDAQ: PAYX ) CEO Martin Moshe announced his retirement as CEO of the human resources management company after 12 years at the helm. When Mucci became CEO, PAYX shares traded at around $28. It has since gained 333%, compared with 240% for the S&P 500.

"During his tenure as CEO, Paychex more than doubled revenue from $2 billion to $4.6 billion, and our market capitalization grew from $10 billion to $50 billion," said B. Thomas Golisano, founder and board member of Paychex Corporation.

Mucci will be replaced by Chief Operating Officer B. Thomas Gibson. Mochi will remain president.

Paychex announced its results for the fourth quarter of 2022 (late May) at the end of June. It closed the fiscal year with an operating profit of $1.84 billion (+26% compared to 2021), net cash of $493.6 million and Swiss francs of $1.37 billion.

Fair FCF yield of 3.1%.

Lamm Research (LRCX)

Source: Michael V / shutterstock

Lam Research (NASDAQ: LRCX) is a California-based manufacturer of semiconductor chip equipment.

It posted record revenue and profit for the fourth quarter ended June 26. At its peak, it posted revenue of $4.64 billion, a 14% increase from Q3 2022. As a result, non-GAAP earnings per share was $8.83. This is 19% more compared to the previous quarter.

"Lam reported record earnings and earnings per share in the June quarter as it continues to operate in a tight supply environment," said Tim Archer, president and CEO of Lamm Research.

Lamm's total cash and cash equivalents and short-term investments were $3.9 billion as of June 26, compared with $4.6 billion at the end of March. If you are a shareholder, the good news is that $876.1 million has been deducted by share repurchases. It ended fiscal year 2022 with a net debt of $1.06 billion.

The hardware maker expects operating revenue to reach $5.38 billion in fiscal 2022, up 23 percent from a year ago. Operating income accounted for 31.2% of revenue, up 60 basis points from 2021.

Central AC has a yield of 4.4% based on FCF 2022 of $2.55 billion and a market cap of $58.48 billion. I think anything between 4% and 8% is fair value.

Cisco Systems (CSCO)

Source: Valeria Zankovich / Shutterstock.com

Cisco Systems (NASDAQ:CSCO) reported better-than-expected results for the fourth quarter of 2022 in August. At its peak, it had $13.1 billion in revenue, which is $310 million more than analysts' expectations. As a result, it earned 83 cents per share, a penny above consensus estimates.

Equally important, the company's management is very optimistic for fiscal year 2023. Revenue is expected to grow in the mid-5% range, with EPS ranging from $3.49 to $3.56. Analysts expect earnings to rise just 2.3% to $3.53 per share.

Its operating profit for fiscal 2022 was $13.97 billion, up 8.9 percent from $12.83 billion last year. Net cash flow was $10.6 billion, and FCF yield was 7.3%. I assume any value greater than 8% in the value area.

Cisco closed the year with more than $31 billion in outstanding performance bonds. He continues to expand his business into a more cloud-based operation. As a result, annual recurring income (ARR) was $22.9 billion at the end of the fourth quarter, up 8% from a year ago.

Between share buybacks and dividends, Cisco returns more than $4 billion to shareholders every quarter.

Synaptic (SYNA)

Source: Apple

The average rating of the 11 analysts covering Synaptics (NASDAQ:SYNA) is “Buy” with a target price of $190.50, up 73% from the current stock price.

The maker of high-performance semiconductor Internet of Things (IoT) solutions generates about 70% of its revenue from IoT products and services. The remaining 30% comes from the mobile and PC end markets. In fiscal 2018, mobile and PC end markets accounted for 79% of its revenue. In 2019, the usable market (SAM) was $8 billion. By 2023, it has grown to over $11 billion thanks to the Internet of Things.

Synaptics has done an impressive job of strengthening its finances in recent years, with a generally accepted gross margin (GAAP) of 61.0% in Q4 2022, up 20% from Q4 2019. This is 9 percentage points higher, it's valid in Armenian. Fourth quarter 2022 on a non-GAAP basis. Margins were 39%, almost 8 times higher than in the fourth quarter of 2019, resulting in a healthier balance sheet.

At the end of June, Synaptics had a net debt of $105.7 million. In comparison, its net debt at the end of fiscal 2019 was $140.5 million. Meanwhile, over the past three years, its total assets increased 103%, from $1.41 billion to $2.86 billion.

In terms of valuation, it has a free cash flow return of 9.1%, which puts it right in value territory. Definitely one of the best tech stocks to buy right now.

Jack Henry & Company (JKHY)

Source: fatmawati achmad zaenuri / Shutterstock

Jack Henry & Associates (NASDAQ: JKHY) sounds like a law firm, but provides financial technology solutions for small and medium-sized banks. It currently serves more than 8,000 customers.

On September 1st, Jack Henry completed his latest acquisition, acquiring Payrailz, an AI-powered peer-to-peer payments service provider. Although terms were not disclosed, the deal allowed Jack Henry to expand the Pay-as-a-Service (PaaS) game with banks and credit unions. Adding only $8-10 million in revenue, this is a strategic acquisition. You won't be moving the needle any time soon.

On the same day, he closed the acquisition of Payrailz. It also announced a partnership with Google Cloud to accelerate its next-generation technology strategy.

"Through his partnership with Google Cloud, Jack Henry will put financial institutions at the center of their account holders' financial lives, providing access to Jack Henry's expansive ecosystem and advancing fintech solutions in the cloud through one secure and scalable platform." In a press release on September 1, he said.

Financially, Jack Henry's earnings are up 9% in fiscal 2022, while operating profit is up 13% compared to 2021. By 2023, he expects revenues of at least $2.05 billion, with earnings per share of $5.05.

Lumentum Ownership (LITE)

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Lumentum Holdings (NASDAQ:LITE) announced its fourth quarter 2022 results on August 16. Both revenue and profit beat analyst estimates. revenue was $422.1 million, beating expectations of $4.1 million, and revenue was 49 cents for the quarter, better than 21 cents. Analysts had expected, but his guidance for the first quarter of 2023 missed estimates.

"In fiscal year 2022, we achieved record sales in EML data, connected components, laser pumps, compression tubes and subsea components, with business profitability exceeding our target model of 50% gross margin and 30% operating," said Alan Lowe. , President and CEO.

LITE shares lost 18% of their value in the three weeks following the earnings announcement. That's down nearly 27% year over year.

Despite the negative outlook for the first quarter, analysts are generally optimistic on manufacturers of optical and optical products. In total, Lumentum includes 14 analyzers. Eleven rated it as buy, two plus, and the others held and didn't sell. The average target price is $111.62, which is 42% above the current stock price.

As of July 2, there were $1.88 billion in convertible bonds with $2.55 billion in cash and short-term investments and $670.0 million in net cash.

As of the date of publication, Will Ashworth has no position (directly or indirectly) on the titles mentioned in this article. Opinions expressed in this article are those of the author and are subject to InvestorPlace.com publication guidelines.

Will Ashworth has been writing about investing full time since 2008. His publications include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and many more in the US and Canada. He really enjoys creating designer wallets that will stand the test of time. He lives in Halifax, Nova Scotia.