Most tech stocks soared to new highs last year due to a COVID-19-led dependency on technology. However, the ongoing economic recovery and fears about rising inflation have been motivating investors to rotate away from expensive tech stocks into quality cyclical stocks. This is evident in the Technology Select Sector SPDR Fund’s (XLK) 5.5% gains over the past three months versus the SPDR S&P 500 ETF Trust’s (SPY) 10.2% returns.
This has created an impressive opportunity to buy fundamentally sound tech stocks at reasonable prices. Continued digital transformation and increasing use of cloud computing, artificial intelligence (AI), 5G technology and other innovations could drive a rebound in the technology sector in the near to mid-term.
Given this backdrop, we think it is wise to bet now on United Microelectronics Corporation (UMC), AU Optronics Corp. (AUOTY), Seiko Epson Corporation (SEKEY) and Richardson Electronics, Ltd. (RELL). They are all currently trading at less than $10 but hold considerable upside potential.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC is a semiconductor wafer foundry that operates internationally. The company operates through two segments—Wafer Fabrication and New Business. It provides circuit design, mask tooling, wafer fabrication and assembly, and testing services, and is also engaged in the manufacture of products in the solar energy and LED industries.
On April 28, UMC announced plans to expand capacity at its 300mm Fab 12A Phase 6 (P6) in Taiwan’s Tainan Science Park through a collaboration with several of its leading global customers. Stan Hung, chairman of UMC said, “UMC’s expansion plans follow a return-based strategy that focuses on business growth while maintaining sustainable profitability.”
The company’s operating revenue increased 11.4% year-over-year to NT$47.10 billion ($1.69 billion) for the first quarter, ended March 31. Its operating income grew 123.2% year-over-year to NT$7.62 billion ($274.06 million). Its net income increased 372.5% year-over-year to NT$10.43 billion ($374.95 million). The company’s EPS increased 347.4% year-over-year to NT$0.85.
For the current quarter, ending June 30, 2021, analysts expect UMC’s EPS to be $0.13, which represents a 44.4% year-over-year increase. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The company’s annual revenue is expected to increase 14.3% year-over-year to $7.10 billion in its fiscal year 2021. The stock has gained 273.6% over the past year to close yesterday’s trading session at $9.19.
UMC’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Momentum, Quality, Value, Stability and Sentiment. Within the B-rated Semiconductor & Wireless Chip industry, UMC is ranked #2 of 98 stocks. To see UMC’s rating for Growth as well, click here.
Click here to checkout our Semiconductor Industry Report for 2021
AU Optronics Corp. (AUOTY)
AUOTY designs, develops, manufactures, assembles, and sells thin film transistor liquid crystal displays (TFT-LCDs) and other flat panel displays internationally. The company operates through two segments: Display and Energy. It also sells ingots, solar wafers, and solar modules.
AUOTY obtained approximately 7.7% of the shares of SINTRONES Technology Corp. from a major shareholder on February 22, 2021. By acquiring the shares and forging an alliance, the two companies are expected to establish a strategic partnership for the AIoV ecosystem and jointly develop comprehensive solutions for smart transportation and commercial vehicle networking platforms. So, AUOTY is well-positioned to generate significant returns in the near-term.
AUOTY’s net sales increased 54.5% year-over-year to $2.91 billion for the first quarter, ended March 31, 2021. Its operating profit came in at NT$12.02 billion ($432 million) compared to a NT$5.45 billion ($195.85 million) operating loss in the prior-year period. The company’s net profit came in at NT$11.84 billion ($425.79 million) compared to a NT$5.78 billion ($207.75 million) net loss in the prior-year period. The company’s EPS came in at NT$12.46 compared to a NT$5.25 loss per share in the year-ago period.
Analysts expect AUOTY’s EPS to come in at $2.26 in its fiscal year 2021, which represents a 1,638.5% year-over-year increase. It surpassed consensus EPS estimates in three of the trailing four quarters. Its revenue is expected to increase 57.6% year-over-year to $3.35 billion for the current quarter, ending June 30. The stock has gained 232.7% over the past year to close yesterday’s trading session at $8.25.
It’s no surprise that AUOTY has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has an A grade for Growth, and a B grade for Value and Momentum.
Click here to see AUOTY’s ratings for Stability, Sentiment and Quality also. AUOTY is ranked #2 of 45 stocks in the B-rated Technology – Electronics industry.
Seiko Epson Corporation (SEKEY)
Headquartered in Suwa, Japan, SEKEY, together with its subsidiaries, develops, manufactures, sells, and provides services for products in printing solutions, visual communications, and wearable and industrial products. Its offerings include home and office inkjet printers, 3LCD projectors, and color image scanners.
SEKEY’s Epson America, Inc. introduced the latest thermal receipt printer with built-in tablet mount—its OmniLink TM-m30II-SL—on May 25. This unique, compact all-in-one mobile POS solution is designed for space-constrained retail and hospitality environments. So, with the increasing demand for this product, SEKEY is expected to gain.
The company’s business profit increased 50.9% year-over-year to 61.64 billion yen ($563.28 million) for the first quarter, ended March 31, 2021. Its profit from operations grew 20.7% year-over-year to 47.65 billion yen ($435.46 million), while its profit for the period increased 296.2% year-over-year to 31 billion yen ($283.23 million). The company’s EPS increased 301.6% year-over-year to 89.35 yen.
SEKEY’s annual revenue is expected to increase 46.1% year-over-year to $9.62 billion in its fiscal year 2022. The stock has ascended 62.7% so far this year to close yesterday’s trading session at $9.26.
SEKEY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. It has an A grade for Value, and a B grade for Growth, Stability, Momentum and Quality.
Click here to access SEKEY’s rating for Sentiment as well. It is ranked #2 of 47 stocks in the B-rated Technology – Hardware industry.
Richardson Electronics, Ltd. (RELL)
RELL is engaged in power and microwave technologies, customized display solutions, and healthcare equipment businesses in North America, Asia Pacific, Europe, and Latin America. The company operates through three segments: Power and Microwave Technologies Group, Canvys, and Healthcare.
On May 4, RELL announced an exclusive manufacturing and global distribution agreement with Battery Street Energy to manufacture ultracapacitor-based engine start modules. This could boost its growth.
RELL’s net sales increased 18.3% year-over-year to $45.23 million for its fiscal third quarter, ended February 27, 2021. Its operating income grew 2,763.6% year-over-year to 0.31 million. Its net income came in at $0.23 million compared to a $0.09 million net loss in the prior-year period. The company’s EPS was $0.02 compared to a $0.01 loss per share in the year-ago period.
The stock has gained 109.1% over the past year to close yesterday’s trading session at $8.30. It is currently trading 4.8% below its 52-week high of $8.72, which it hit on April 23, 2021.
RELL’s POWR Ratings reflect its solid prospects. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. It has a B grade for Growth, Sentiment and Quality.
To see the additional POWR Ratings for RELL (Stability, Value and Momentum), click here. It is ranked #4 in the Technology – Electronics industry.
UMC shares were trading at $9.41 per share on Friday afternoon, up $0.22 (+2.39%). Year-to-date, UMC has gained 11.63%, versus a 12.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal’s fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More…
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