You don’t need to be a Wall Street expert to realize that innovators dominated the equities space in 2023. But that doesn’t mean you can’t find discount tech stocks. On the contrary, with so many publicly traded enterprises available within the underlying sector, it’s almost inevitable that a few opportunities will be less appreciated by mainstream market participants.
To be sure, when you’re talking about tech stocks on discount, you must factor in the risks. Not all great ideas blossom into great and sustainable businesses. At the same time, investors pay a rich premium for predictability. Not only that, no guarantees exist that what was considered predictable in the outgoing year will be labeled the same in 2024.
In other words, a bad moment in the market could see many investors buying the flavors of the week end up holding the bag. So, for this and other reasons, it makes sense to at least consider discount tech stocks.
What it is: A multinational software company, Gen Digital (NASDAQ:GEN) provides cybersecurity software and services. Since the beginning of the year, GEN only gained a modest 7%. However, it’s been on the move recently, swinging up over 8% in the trailing month.
Relevance: Fundamentally, the cybersecurity sector’s relevance speaks for itself. According to Fortune Business Insights, the sector printed a valuation of $153.65 billion in 2022. By 2030, experts project that the sector could hit $424.97 billion. If so, that would represent a compound annual growth rate (CAGR) of 13.8% from 2023.
Pros: At the moment, GEN shares trade hands at less than 10X forward earnings. That’s far lower than the sector median 23.52X. In addition, Gen Digital enjoys excellent margins across the board and is overall consistently profitable. Finally, analysts rate shares a strong buy with a $25.50 average price target.
Cons: It’s balance sheet could use some shoring up, particularly its cash level relative to debt.
Concentrix (CNXC)
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What it is: A business services company, Concentrix (NASDAQ:CNXC) specializes in customer engagement and business performance. Since the beginning of the year, CNXC suffered a loss of almost 26%. While that’s understandably unappetizing, in the trailing six months, it swung up more than 19%.
Relevance: Concentrix plies its trade in a surprisingly relevant field. According to Mordor Intelligence, the customer engagement software market will soon reach a size of $19.68 billion. By 2028, the sector could be worth over $33 billion, translating to a CAGR of 10.97%. Given that many companies will be competing for possibly fading consumer dollars, CNXC is one of the discount tech stocks to consider.
Pros: Currently, CNXC trades at a forward earnings multiple of 7.55X. Again, the underlying software sector features a forward earnings print of 23.52X. In addition, CNXC trades at 0.78X trailing-year revenue, favorably below 78.71% of its peers. Analysts peg shares as a strong buy with a $110.00 target.
Cons: Expense-cutting initiatives could hurt revenue growth.
Ibex (IBEX)
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What it is: Billing itself as an elite customer experience outsourcer (CX), Ibex (NASDAQ:IBEX) helps provide innovative and productive solutions for startups, scaleups, and blue chips. Per its website, Ibex builds CX engagement protocols that help protect client investment, reduce operational risk, and accelerate returns on investment.
Relevance: Another enticing idea among tech stocks on discount for its ties to a burgeoning industry, Grand View Research states that the underlying global CX management market size reached $10.65 billion in 2022. By 2030, experts project that the sector could hit revenue of $32.87 billion, translating to a CAGR of 15.4%.
Pros: Presently, the market prices IBEX at a forward earnings multiple of 8.94X. That ranks favorably below 92.52% of its peers in the software industry, making it one of the discount tech stocks to consider. Also, it trades at only 14.61X free cash flow, below the sector median of 23.24X. Analysts rate shares a moderate buy.
Cons: Shares fell almost 27% since the beginning of the year, making it a risky proposition.
Tower Semiconductor (TSEM)
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What it is: Based in Israel, Tower Semiconductor (NASDAQ:TSEM) manufactures integrated circuits (ICs) using specialty process technologies. Some of its specialties include CMOS image sensors and non-volatile memory. Lesser known among its peers, TSEM carries a respectable market capitalization of $3.33 billion.
Relevance: As a vital component of the tech space, the IC market drives information technology (IT). In terms of hard data, the global sector posted a valuation of $453.64 billion in 2022. Further, experts project that by 2029, the segment could see a value of $920.53 billion. That would translate to a CAGR of 10.6%. Thus, TSEM deserves consideration as one of the compelling discount tech stocks.
Pros: Right now, TSEM trades at a trailing-year earnings multiple (without non-recurring items or NRI) of 15X. That’s noticeably lower than the sector’s NRI earnings multiple of 28.18X. Also, it trades at 9.73X FCF, favorably lower than 82.77% of rivals.
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What it is: Headquartered in Hsinchu, Taiwan, United Microelectronics (NYSE:UMC) is a semiconductor foundry specialist. Stated another way, United manufactures ICs for other companies who design them but don’t build them due to lacking their own production facilities.
Relevance: Because of its vital connection and relevance to the broader semiconductor supply chain, UMC makes a solid case for tech stocks on discount. Regarding the data, Mordor Intelligence states that the chip foundry market size will soon reach $127.79 billion. By 2028, the sector could be worth nearly $185 billion. If so, that would translate to a CAGR of 7.67%.
Pros: United enjoys strong overall financials, again making it an ideal play for discount tech stocks. Enticingly, UMC trades at only 13.3X forward earnings, well below the sector median of 23.43X. Goldman Sach’s Bruce Lu sees shares reaching $10.20, implying 28% upside.
Cons: TSEM saw a relatively sharp ebb and flow this year so investors should be prepared for possible choppiness.
inTest (INTT)
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What it is: Based in New Jersey, inTest (NYSEAMERICAN:INTT) is a global supplier of innovative test and process technology solutions. These mechanisms are utilized in key markets, including automotive (electric vehicles), defense/aerospace, industrial, life sciences and security.
Relevance: While inTest’s website provides a mouthful regarding its description, the company features relevancies for the industrial automation sector. Globally, this market reached a valuation of $147.9 billion in 2022. Further, experts project that by 2027, the segment could see a value of $218.8 billion. If so, we’re talking about a CAGR of 8.2%. That right there makes INTT one of the discount tech stocks to consider.
Pros: Invariably, at least some investors will find the trailing-year earnings multiple of 12.72X attractive. That’s lower than 82.52% of companies listed in the semiconductor industry. As well, the company also prints a solid three-year revenue growth rate of 22.6%, yet trades at a discounted sales multiple of 1.16X.
Cons: TSEM suffered a nearly 47% decline in the trailing six months. So, even if it’s one of the tech stocks on discount, you’ve got to be careful.
SurgePays (SURG)
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What it is: A financial technology (fintech) firm, SurgePays (NASDAQ:SURG) aims to deliver various financial products to underbanked communities. It also provides a pre-paid wireless service to said communities, helping those who are not connected to traditional tech-related networks gain critical access.
Relevance: From a wider perspective, SurgePays provides that capitalism and philanthropy don’t necessarily have to be at loggerheads. Further, SURG could legitimately be one of the intriguing discount tech stocks. According to the Federal Deposit Insurance Corporation (FDIC), an estimated 4.5% of U.S. households (about 5.9 million) were underbanked in 2021.
Pros: The market prices SURG at a forward earnings multiple of 3.85X. That’s incredibly low compared to the rest of the sector. Also, analysts rate shares a moderate buy with a $13.25 average price target, implying over 125% upside potential.
Cons: Although incredibly exciting, SurgePays suffers from five red flags. One of these concerns centers on declining revenue growth.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
