The technology sector is generally responsible for innovation and growth. Thus, it’s no surprise that it often produces highly valued stocks. Companies like Microsoft (NASDAQ:MSFT) and Nvidia (NASDAQ:NVDA) are great examples of the sector. Yet, there are plenty of underestimated tech stocks poised for a breakout.
Once these bargain stocks break out they tend to create instant value for investors. Fortunately, there are relatively easy ways to identify shares with such potential. Value metrics are an extremely useful tool, but they are not the only factors investors should consider when hunting for bargains.
Thematic direction of markets and how a given stock fits such narratives should also be examined. Let’s take a look at three underestimated stocks poised for a breakout.
Cisco Systems (CSCO)
Cisco Systems (NASDAQ:CSCO) has undertaken an effort to rejuvenate its business and make it stronger in relation to recurring revenues. That’s the thrust of the logic behind its recent acquisition of Splunk.
The deal is expected to add $4.2 billion in annual recurring revenues to Cisco Systems. CSCO itself reported $25 billion in annual recurring revenues in the most recent year. The acquisition will better align Cisco Systems with the analytics and cyber security markets overall.
That should be a boon to CSCO shares, which are generally viewed as a more conservative choice overall. Part of the reason Cisco Systems has undertaken such a transition is related to declining earnings and revenue in the most recent quarter.
CSCO stock is a bargain based on its P/E ratio. It’s reasonable to anticipate that ratio will rise as more attractive software earnings enter the mix following the Splunk acquisition.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) is often one of the first stocks discussed when it comes to the confluence of tech and income. The chip manufacturer’s shares include a dividend yielding roughly 2%.
Furthermore, Qualcomm is undervalued when it comes to price to free cash flow ratio. QCOM’s strong free cash flow implies several things. First of all, Qualcomm’s ability to produce such cash flows is particularly beneficial given that it does pay dividends. Further, it also suggests that the company has the cash on hand to operate after everything else is done. That allows the company the latitude to do as it pleases.
The point here is that Qualcomm’s cash position gives it the ability to seek growth. That means the company is one of a few that provides income and growth opportunities to investors.
Micron Technology (MU)
Micron Technology (NASDAQ:MU) is undervalued for the simple fact that it is making a push to provide for Nvidia.
The company recently began mass production of high bandwidth memory chips for use in Nvidia’s most up-to-date AI chips.
The South Korean firm’s rivals Samsung and SK Hynix have decided to work together to address Micron’s challenge. That admission was highly unprecedented and speaks to their fear Micron will establish an insurmountable early lead. Micron is ahead of both South Korean firms in terms of production and is in position to become an integral supplier to Nvidia. MU has a technological advantage over Samsung that could prove particularly beneficial.
Micron is also better positioned from the perspective that it is a U.S. company. Firms located in the US will have an easier time in the lead up to the presidential election. for all of those reasons Micron is underestimated.
On the date of publication, Alex Sirois 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.
