With the Technology Select Sector SPDR Fund (NYSEARCA:XLK) running well above the equities benchmark index this year, it’s clear that the innovation space is humming strongly, which subsequently yields a case for de-risked tech stocks. Stated differently, these securities represent compelling enterprises that just haven’t enjoyed the success of other technology entities.
Primarily, a key reason to consider de-risked tech stocks is the practical case of mitigating risks of holding the bag. To be 100% clear, just because a publicly traded security prints red ink doesn’t mean that it can’t go anywhere lower. In many (and perhaps most cases), businesses that suffer severe volatility do so because of fundamental vulnerabilities. So, this contrarian approach presents high risks.
At the same time, it’s tough to pile into the usual suspects. Yes, prominent experts have voiced their opinions that the Federal Reserve may implement interest rate cuts next year. However, under basic economic principles, rate cuts usually happen when the economy is in recession.
With inflation still stubbornly high, I have doubts the Fed will want to undo its prior (painful) work. So, the most popular innovators still face concerns, which may bode favorably for these de-risked tech stocks.
Himax Technologies (HIMX)
A leading supplier and fabless semiconductor manufacturer, Taiwan-based Himax Technologies (NASDAQ:HIMX) is a key component of the global computer chip supply chain. Unfortunately, the market doesn’t quite see it that way. Over the trailing 52 weeks, HIMX incurred double-digit percentage losses. Still, an argument could be made that shares are stabilizing, suggesting that HIMX may rank among de-risked tech stocks.
Adding to this hypothesis, Wall Street analysts currently rate HIMX as a consensus moderate buy. To be fair, the consensus stems from only two experts. However, the average price target between the pair comes in at $7.50, implying a sizable upside from the time of writing. Also, the highest price target of the two calls for shares hitting $8.
That seems reasonable. After incurring some disappointing financial performances, the company posted sales growth of 11.6% in the third quarter. However, HIMX is trading at only 1.03x trailing-year revenue, far lower than the 2.96x sector median. Thus, it’s one of the de-risked tech stocks to put on your radar.
Allient (ALNT)
Based in Amherst, New York, Allient (NASDAQ:ALNT) produces precision and specialty motion control components and systems for commercial, industrial, medical, vehicle, aerospace and defense market. From a cynical perspective, the latter specialty could become extraordinarily relevant given the current geopolitical paradigm. However, the market hasn’t cooperated, with ALNT down sharply in the past one-year period.
Still, recent trading dynamics suggest that a bottom may have been printed. Interestingly, data from Fintel indicates that options sentiment may be quite bullish based on the underlying put/call ratio. Moreover, ALNT enjoys support from analysts, who peg shares a moderate buy. Again, the consensus stems from only two experts. However, the average price target lands at $40, projecting robust growth.
Also, the maximum price target – courtesy of Northland Securities – stands at $45. From the financials, Allient may be able to surprise some folks. After fading a bit in 2020, revenue has been surging higher. Even so, ALNT only trades at a sales multiple of 0.77x, below the underlying sector median of 1.49x.
AXT (AXTI)
Headquartered in Fremont, California, AXT (NASDAQ:AXTI) is a material science company. Per its website, it develops and manufactures high-performance compound and single-element semiconductor wafer substrates comprising indium phosphide (InP), gallium arsenide (GaAs), and germanium (Ge). Fundamentally, AXT offers behind-the-scenes relevance for the chip manufacturing space. However, shares suffered heavy losses since the January opener.
Usually, when entities bleed as much as AXT, we’re not talking about de-risked tech stocks; rather, we’re talking about super-risky enterprises you should probably run away from. However, AXTI has roughly stabilized in the trailing month, suggesting that it may be nearing a bottom. Also, analysts are somewhat optimistic about it, pegging shares a moderate buy.
Further, the average price target calls for $3.22, representing a conspicuous leap from the time of writing. Also, the high-side target hits $5, well more than double where shares trade today. In fairness, the market responded to AXT’s sharp erosion of the top line. Still, traders may be poised to bid up call options, which could lift AXTI.
MagnaChip (MX)
Another intriguing candidate for de-risked tech stocks for speculators, MagnaChip (NYSE:MX) designs and manufactures analog and mixed-signal semiconductor-based solutions. Why is that important? According to the company’s website, its innovations enable slimmer form factors, longer battery life, better performance, and amazing image quality. Still, Wall Street isn’t giving MX the benefit of the doubt, sending shares down sharply over the past 52 weeks.
Admittedly, it’s not entirely clear if MagnaChip represents one of the de-risked tech stocks at the moment. I say that because recent sessions have been quite volatile. Still, analysts peg MX a consensus moderate buy with an $11.50 average price target. That alone symbolizes a tremendous return. However, the max price target (within the past three months) comes from Needham at $13.
To be clear, MagnaChip has suffered a severe erosion of its top line, hence the negativity toward it. However, it’s also possible that the market has for the most part digested the bad news. Also, despite the ugliness in the financials (and the price chart), options traders may be bullish on MX. I’d keep an eye on it.
GDS Holdings (GDS)
Easily one of the riskiest de-risked tech stocks available, GDS Holdings (NASDAQ:GDS) should only be engaged with a clear understanding of the downside possibilities. For one thing, you must Google translate the company’s website (if you don’t speak Chinese). Doing that, we find that GDS represents one of China’s leading high-performance data center operators and service providers.
That seems powerfully relevant. Sadly, someone needs to tell the Street, which is absolutely skeptical about GDS. However, over the trailing half-year period, an argument can be made that shares have roughly stabilized. That might imply that the bears have been exhausted, possibly leading to a bullish comeback. Also, Jefferies analysts rate GDS a buy with a $17.75 price target.
Interestingly, since the beginning of the year, various analysts have posted price targets that imply a 200% upside or more. As for the financials, the company’s extreme growth phase appears to have subsided in favor of steady top-line expansion. The good news? GDS trades at 1.33x trailing revenue, lower than the sector median of 2.2x.
Alithya Group (ALYA)
Hailing from Alpharetta, Georgia, Alithya Group (NASDAQ:ALYA) represents a pure risk-on idea among de-risked tech stocks. Per its public profile, Alithya is a digital strategy and technologies firm that primarily covers the North American market. For additional insights, the company’s website claims that it helps advise its clients on their digital transformation journey. Still, it hasn’t convinced the Street yet, resulting in sharp losses for the year.
Another headwind that clouds the narrative is tech firms – despite the broader economic recovery narrative – are seeking ways to reduce costs. That includes layoffs and sunsetting unproductive business units. So, I understand the red ink. However, analysts still peg ALYA as a consensus moderate buy with a $2.06 average price target. What’s more, the high-side target lands at $2.59, more than doubling the current price level.
Financially, it’s a tough call, in part because investment data aggregator Gurufocus warns ALYA could be a value trap. It’s also seeing a flattening of its sales trajectory, which is distracting. Still, companies can’t afford to lose ground in the digital ecosystem. That’s probably why analysts are positive on ALYA despite the heavy risks.
Boxlight (BOXL)
Headquartered in Duluth, Georgia, Boxlight (NASDAQ:BOXL) bills itself as an innovative technology developer that inspires and drives success in all organizations. Aside from the ambiguous word salad, Boxlight offers an education technology (edtech) platform that helps accelerate learning in core academic cycles and provides training for various professional industries. Everyone understands the need for edtech but unfortunately, the Street doesn’t get BOXL.
Part of the problem is that Boxlight cratered horribly in the trailing month. Per TipRanks, the company posted a loss of $1.90 per share for its third quarter. However, analysts anticipated earnings of 34 cents per share. Also, revenue of $49.67 million was badly off the consensus target of $59.74 million.
Surprisingly, though, analysts rate BOXL a unanimous strong buy. Granted, we’re only talking about three experts. However, the average price target of $4.50 implies a quadrupling of market value. Even better, the high-side target calls for $6.
In full disclosure, Boxlight suffers from several red flags. But if you believe in the potential of edtech, BOXL could be one of the (relatively) de-risked tech stocks to gamble on.
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.
