Updated: Aug 9, 2021 at 2:14PM
The technology sector has played a leading role in powering the markets gains over the past couple of decades, and buying and holding cheap tech stocks can lead to life-changing returns. New hardware, software, and services in the space have helped to drive changes in business and everyday life, and techs ability to shape and influence nearly every industry under the sun means the sector remains one of the best starting places for investors seeking big gains.
Cheap tech stocks to watch
Growth-dependent valuations and lofty expectations can make it challenging to find great deals on tech stocks, but its still possible to find attractively valued companies that are primed to deliver market-crushing gains. These are seven cheap tech stocks that could deliver strong returns and are worth adding to your portfolio:
1. Lumen Technologies (NYSE:LUMN)
2. Ubisoft (OTC:UBSFY)
3. Baozun (NASDAQ:BZUN)
4. Verizon Communications (NYSE:VZ)
5. AT&T (NYSE:T)
6. Facebook (NASDAQ:FB)
7. ContextLogic (NASDAQ:WISH)
CenturyLink changed its name to Lumen Technologies as part of a broader effort to refocus its business and has been making progress under its new banner. However, the stock remains cheaply valued and offers attractive characteristics for investors seeking big dividends and strong value. The telecommunications business still has avenues for growth, and the stock trades at a non-prohibitive price-to-earnings (P/E) multiple and has one of the biggest dividend yields among reasonably stable companies in the sector.
Lumen is pivoting its core business from copper-based broadband services to high-performance fiber lines, which have a stronger demand outlook in the age of next-generation internet technologies, and it should generate attractive margins. The company is also leveraging its position in enterprise internet services to explore growth opportunities in edge computing, cybersecurity, and collaboration software. Lumen offers a dividend yield thats tough to beat, and the cheaply valued stock could deliver big gains if the companys turnaround effort continues to succeed.
The video game industry is experiencing strong growth as more players around the world pick up the hobby. Many video game companies have also benefited from engagement boosts due to social-distancing conditions.
Overall industry momentum and tailwinds stemming from the COVID-19 pandemic have helped power impressive momentum for some gaming companies, but Ubisoft is a stock in the space that remains cheaply valued. The France-based video game publisher is best known for its series including Assassins Creed, Rainbow Six, and Ghost Recon, and the stocks growth potential looks underappreciated amid signs of rising demand for interactive entertainment.
Baozunis a Shanghai-based company whose core business is providing services that help large Western brands to launch and scale e-commerce operations in China. This isnt a low-risk stock, but it looks attractively priced and offers big upside for investors willing to embrace potential volatility.
Building an e-commerce business in China is often difficult for Western brands, and Baozun provides localized solutions for tapping into the countrys world-leading and fast-growing online retail market. The company also provides services to small- and medium-sized U.S. businesses, and economic growth leading to new business formations in the country could become a major catalyst for the e-commerce services provider.
4. Verizon Communications
Verizon operates the U.S.s largest and best-rated mobile wireless network, and it looks well-positioned to benefit from the rollout of 5G networks. The next-gen internet technology is vastly improving upload and download speeds, and the dramatic improvements should lead to hardware, software, and service applications that boost demand at the consumer and enterprise levels.
Mobile connectivity is increasingly central to business and everyday life, and its likely that digital connectivity will become even more important through the next decade and beyond. Verizon is in the early stages of benefiting from the 5G revolution, and its stock also pays a substantial dividend and has a low P/E ratio.
AT&T is second only to Verizon in terms of total U.S. mobile subscribers, and the company also has a formidable entertainment business that could help drive future growth. The company acquired Time Warner in 2018, and its making a big play in the streaming entertainment space with its HBO Max streaming service. With its strong collection of entertainment franchises and production studios and potential synergies with its mobile services business, AT&T likely will be able to carve out a lasting position in the content space.
AT&T stock also pays a big dividend and has a 34-year history of consecutive annual payout growth, making it a Dividend Aristocrat. With the stock sporting a huge dividend yield and a low P/E ratio, combined with the companys opportunities for growth in emerging 5G and streaming entertainment services, AT&T looks like a great buy for value-seeking technology investors.
Facebook may not look like a cheap stock, depending on what valuation metrics you use. However, the social media giant is undervalued compared to many other big names in the tech sector, and theres a good chance it will significantly outperform the market over the long term. While Facebook stock trades at prices that are undeniably dependent on the companys continued growth, recent setbacks have caused some investors to underestimate the social-networking leaders potential.
Facebook has had to contend with pressures from government regulators and a weaker digital advertising market due to economic conditions created by the pandemic, but it should be able to navigate these challenges and reap benefits from economic recovery. With billions of users across its namesake social media platform, Instagram, and WhatsApp, Facebook can likely tap into the long-term growth for the digital advertising market and leverage opportunities in fast-growing sectors, including e-commerce and fintech services.
ContextLogic operates Wish, a bargain-focused e-commerce platform, and it could be a big winner if the company continues to attract users with its budget and off-brand offerings. E-commerce has already dramatically reshaped the retail market in territories including the U.S., Western Europe, and China, but the online retail revolution is still in the comparatively early stages in many parts of the world.
ContextLogic is admittedly growing at a slower rate than some e-commerce industry leaders, but it still looks cheap on a price-to-sales basis, and the business could be on the verge of tapping into some powerful growth trends. Convenient mobile access to low-price goods will be key to driving online retail sales in markets where e-commerce adoption is still relatively low, and ContextLogic could additionally benefit from an expanding global middle class and rising per-capita discretionary income.
What to look for in tech stocks
Investors are generally well-served by keeping an eye on tech companies sales and earnings growth, as well as valuation metrics including price-to-sales and price-to-earnings ratios. There are many other useful stock metrics you can and should consider, and its also helpful to keep an eye on each companys number of active users or customer count and the amount of per-user or per-client sales and profit a business is generating.
The technology sector encompasses a vast array of companies providing a wide range of disparate products and services. Theres no reliable one-size-fits-all approach for evaluating stocks in the space, but charting business momentum and keeping intrinsic value in mind can make it easier to identify winners.Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fools board of directors. Keith Noonan owns shares of AT&T, Activision Blizzard, Baozun, Glu Mobile, and Take-Two Interactive. The Motley Fool owns shares of and recommends Activision Blizzard, Alibaba Group Holding Ltd., Baozun, Facebook, JD.com, Take-Two Interactive, and Tencent Holdings. The Motley Fool recommends Ubisoft Entertainment and Verizon Communications and recommends the following options: long January 2023 $115 calls on Take-Two Interactive. The Motley Fool has a disclosure policy.>
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