Title: Three Affordable Tech Stocks Worth Investing in January
Many tech stocks soared in the past year, primarily due to expectations of lower interest rates encouraging investment in higher-growth companies. However, with the Nasdaq Composite near its all-time high, it's wise to be selective when buying stocks. Instead of chasing high-growth tech stocks, Consider affordable ones offering enticing dividends. Three undervalued tech stocks worth considering in January 2023 are IBM, AT&T, and HP.
1. IBM
For a while, IBM was a stagnant tech company with waning revenue and profitability. Its IT software and services business was on the decline, and competition from cloud-based competitors was too strong. Cost-cutting measures, buybacks, and divestments seemed to be IBM's only focus.
This trend changed with the arrival of Arvind Krishna as CEO in 2020. Krishna spun off the slow-growth managed IT infrastructure services business as Kyndryl, boosting Red Hat's visibility in hybrid cloud and AI markets. These strategic moves paid off, improving IBM's revenue and EPS growth significantly.
From 2021 to 2023, IBM's revenue grew at a compound annual growth rate (CAGR) of 4%, with earnings per share (EPS) rising at a CAGR of 13%. Analysts forecast IBM's revenue and EPS to grow at a CAGR of 3% and 5%, respectively, from 2023 to 2026.
IBM's growth rates may not be impressive compared to other tech stocks, but its forward dividend yield of 3% becomes more appealing as interest rates decline. IBM still appears undervalued, with a forward P/E ratio of approximately 21 times.
2. AT&T
Once considered a dying telecom company, AT&T has reinvigorated its business by divesting its media assets, including DirecTV and Time Warner. By focusing on 5G and fiber technologies, AT&T reduced its debt and increased cash flow.
AT&T generated $16.8 billion in free cash flow (FCF) in 2023, with postpaid phone and fiber business net adds up by 1.7 million and 1.1 million, respectively. Analysts predict AT&T's annual FCF to increase to between $17 billion and $18 billion by 2024.
Though AT&T's revenue and EPS growth forecast for 2023 to 2026 is only 1% and 5%, respectively, its high dividend yield and low valuation make it an attractive option for market uncertainties.
3. HP
Hewlett-Packard (HP) faced difficulties due to slowing sales in the consumer PC and printer markets from fiscal 2022 to 2024. The company responded through cost-cutting measures, share buybacks, and focusing on emerging sectors like gaming, industrial graphics, 3D printing, and hybrid work.
With a focus on pruning its workforce, streamlining its PC portfolio, launching software services, and rolling out new products, HP is set to boost its revenue and EPS growth from fiscal 2024 to 2027. Analysts predict a CAGR of 2% for HP's revenue and 9% for its EPS during this period.
Currently, HP's stock sells at a modest P/E ratio of 10 times its 2023 earnings, with a 2.8% forward dividend yield. As the PC market stabilizes, HP could offer attractive returns for patient investors.
Sources: 1, 2, 3, 4, 5, 6, 7
In light of the changing financial landscape, investing in IBM could be a wise decision due to its attractive dividend yield and undervalued status with a forward P/E ratio of 21 times.
With its focus on 5G and fiber technologies, AT&T has managed to reduce debt, increase cash flow, and offer a high dividend yield, making it an appealing option in times of market uncertainty.
