Despite the cyclicality causing ups and downs, tech stocks are set to thrive due to their exposure to strong trends like Artificial Intelligence (AI) and electrification.
Therefore, it could be an excellent time to bolster your portfolio with solid tech stocks such as Teledyne Technologies Incorporated (TDY), Arrow Electronics, Inc. (ARW), and Bel Fuse Inc. (BELFB) that have compelling growth prospects.
U.S. tech giant stocks have enjoyed a stellar rally so far this year, fueled by the companies' strong first-quarter earnings that beat Wall Street estimates even as U.S. GDP growth slowed. With the growing demand and adoption of cloud computing, augmented reality, and AI, several tech companies have made a solid comeback.
Investors are also betting on further rallies as the central bank begins to slow and eventually reverse the aggressive monetary policy tightening. As per the CME FedWatch Tool, markets have priced in a 74.8% chance that the Fed pauses rate hikes at its June policy meeting, a move that would likely benefit stocks.
Moreover, the strongly emerging tech bubble of AI is the significant leg of the current rally. According to the IBM Global AI Adoption Index 2022, a survey conducted on over 7500 businesses reveals that 35% of companies already use AI in their everyday work, indicating a four-point increase from 2021.
Moreover, the funding for AI reached $9.3 billion in the fourth quarter of 2022, reflecting an increase of 15% sequentially.
Additionally, the global revenue in the consumer electronics market is estimated to amount to $1.2 trillion in 2028. Also, the consumer products-electrical and electronics market is expected to reach $35.9 billion by 2027, growing at a CAGR of more than 5%.
Amid these trends, investors' confidence seems bright for technology stocks, despite recessionary fears. With that being said, the featured tech stocks look like solid buys in June.
Teledyne Technologies Incorporated (TDY)
TDY provides enabling technologies for industrial growth markets, which include factory automation and condition monitoring, air and water quality environmental monitoring, and others. Its segments include Instrumentation; Digital Imaging; Aerospace and Defense Electronics; and Engineered Systems.
On January 3, TDY acquired Cyprus-based digital marine navigation hardware and software provider ChartWorld International Limited. This acquisition amplifies the company’s software capabilities and recurring revenue while expanding the customer base to include commercial Safety of Life at Sea (SOLAS) class vessels and their commercial fleet operators.
TDY’s net sales increased 4.7% year-over-year for the first quarter that ended on April 2, 2023, to $1.38 billion. The company’s non-GAAP operating and net income came in at $292.20 million and $217.20 million, representing 5.4% and 6.5% year-over-year increases, respectively. Also, its adjusted EPS increased 6.1% from the prior-year quarter to $4.53.
The consensus EPS estimate of $3.84 for the fiscal second quarter (ending June 30, 2023) represents a 7% growth year-over-year. The consensus revenue estimate of $1.41 billion for the current quarter indicates a 4.2% increase from the same period last year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
Its EBITDA and net income have grown at CAGRs of 28.5% and 22.6% over the past three years, respectively, while its EPS has improved at a CAGR of 13.3%.
Over the past nine months, the stock has gained 4.4% to close the last trading session at $396.81.
TDY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has a B grade for Momentum, Stability, Sentiment, and Quality. In the 41-stock Technology - Electronics industry, it is ranked #9. To see additional POWR Ratings of TDY for Growth and Value, click here.
Arrow Electronics, Inc. (ARW)
ARW manufactures and sells electronic components, semiconductors, and enterprise computing solutions to industrial and commercial users. It operates through two segments: Global Components; and Global Enterprise Computing Solutions across the Americas, Europe, Middle East, Africa, and Asia-Pacific regions.
On April 12, ARW signed a pan-European distribution agreement with specialist rack manufacturer Rackmount.IT to help optimize the performance and lifespan of each appliance.
Commenting on this, Alexis Brabant, vice president of sales of ARW’s enterprise computing solutions business in EMEA, said: “This agreement helps create significant value-add for our channel partners by allowing their end customers to get the most from the investment made in their IT hardware, with the additional benefit of a cleaner and more efficient environment.”
On March 14, the company expanded its strategic collaboration with Qualcomm Technologies International, Ltd. to accelerate the development of connected intelligent edge devices and the adoption of AI solutions.
With the combined expertise of both companies, Edge Labs Center of Excellence aims to alleviate IoT development challenges while increasing the adoption of Edge AI across a variety of IoT applications and use cases. This should help attract robust customer demand for such offerings.
During the first quarter (ended April 1, 2023), ARW’s sales amounted to $8.74 billion. Its cash inflow from operating activities came in at $223.80 million compared to a cash outflow of $200.25 million. The company’s non-GAAP attributable net income and EPS came in at $273.59 million and $4.60, respectively, in the same period.
In addition, its total current liabilities of $10.39 billion decreased by 16%, compared to $12.39 billion for the period ended December 31, 2022.
Analysts expect ARW’s EPS for the fiscal year 2023 to amount to $16.50, while its revenue is expected to be $34.37 billion in the same period. EPS and revenue are expected to reach $15.38 and $33.41 billion in the fiscal year 2024, respectively. Moreover, it topped the EPS estimates in each of the trailing four quarters, which is promising.
Its EBITDA and EBIT have increased at CAGRs of 30.3% and 35.9% over the past three years, respectively. Likewise, its revenue has grown at a CAGR of 9.3% over the same period.
The stock has gained 30.8% over the past nine months to close its last trading session at $134.08.
It’s no surprise that ARW has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Value and Momentum. Within the same Industry, it is ranked #10.
In addition to the POWR Ratings we stated above, we also have ARW ratings for Growth, Stability, Sentiment, and Quality. Get all ARW ratings here.
Bel Fuse Inc. (BELFB)
BELFB designs, manufactures, and markets a range of products that protect and connect electronic circuits, connectors, cable assemblies, discrete components, magnetics, and power supplies. It operates through three segments: Connectivity Solutions; Power Solutions and Protection; and Magnetic Solutions.
On February 6, the company acquired a minority stake in Germany-based innolectric AG, aimed at creating a strategic alliance focused on onboard power electronics EVs broadly, but specifically on next-generation fast charging technology.
Analysts expect this transaction to further enhance BELFB’s eMobility Power portfolio with next-generation fast charging technology and cement its position in the rapidly evolving EV on-board charging market.
During the fiscal 2023 first quarter that ended on March 31, 2023, BELFB’s net sales increased 26.1% year-over-year to $172.34 million, while its gross profit grew 57.3% from the prior-year quarter to $53.66 million.
Its income from operations rose 142.8% from the year-ago value to $19.64 million, while its non-GAAP net earnings came in at $11.46 million, representing a 271.9% increase year-over-year. Also, its adjusted EBITDA improved 141.7% from the year-ago value to $28.07 million.
Street expects BELFB’s revenue and EPS for the fiscal year (ending December 31, 2023) to increase 1.9% and 8.9% year-over-year to $666.59 million and $5.02, respectively. Furthermore, it surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is promising.
Over the past three years, its revenue and EBITDA have grown at CAGRs of 13.6% and 85.8%, respectively. Also, its levered FCF grew at a 14.5% CAGR in the same period.
BELFB’s shares have gained 248.7% over the past year and 72.9% year-to-date to close the last trading session at $56.91.
BELFB’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and Sentiment and a B for Growth and Momentum. In the same industry, it is ranked first among 41 stocks. Click here to see the other ratings of BELFB for Stability and Quality.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
TDY shares were trading at $391.99 per share on Friday afternoon, down $4.82 (-1.21%). Year-to-date, TDY has declined -1.98%, versus a 12.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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