Stocks to buy

3 Cheap Tech Stocks to Buy Before They Bounce Back

Many tech stocks have been doing well in 2023. The Invesco QQQ Trust Series 1 (NASDAQ:QQQ) is up roughly 40% year-to-date (YTD). This benchmark contains the top tech companies, but not every company in the index is up 40% YTD. Top winners like Nvidia (NASDAQ:NVDA) have outsized presence in the index and played more of a role in the YTD gains. However, some of the undervalued tech stocks that didn’t contribute to the increase, or even dragged down the QQQ, still look promising. 

Some investors zig when the market zags and look for the under the radar opportunities that are present in every market. These three cheap stocks fit the bill and look primed to bounce back.

Cisco (CSCO)

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Cisco (NASDAQ:CSCO) has been one of the few reliable undervalued tech stocks in recent decades. The company’s 18 P/E ratio reflects this truth and the 3% dividend yield also gives you cash flow as you wait for shares to appreciate. 

Cisco shares are only up by about 8% YTD, which makes it a far cry from the 40% jump in QQQ shares. However, Cisco reported 14% year-over-year (YoY) revenue growth and a 6% YoY net income increase in the most recent earnings report.

Scott Herren, CFO of Cisco, mentioned the company’s healthy backlog and recurring revenue streams as catalysts for raised guidance for FY 2023. If Cisco continues to report several quarters of double-digit revenue growth and healthy profit margins, the stock has potential for a rally. An 18 P/E ratio gives the company plenty of room to expand with the revenue potential from its software and security services. 

Alphabet (GOOG,GOOGL)

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The advertising giant has performed well to start the year. Shares are up by over 34% YTD, which slightly trails QQQ. While this can be viewed as a successful year, peers have left Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) in the dust. Despite reporting worse numbers in revenue and earnings, Meta Platforms (NASDAQ:META) shares are up by 130% YTD. Meta Platforms has a 36 P/E ratio, while Alphabet has a 27 P/E ratio.

Investors can also look at Roku (NASDAQ:ROKU) which has increased by 57% YTD. In Roku’s latest earnings report, the company reported 1% YoY revenue growth and a net loss of $193 million. That’s far more than the $26 million net loss Roku reported in Q1 2022. It doesn’t make much sense for these companies to have higher valuations and more success in the stock market this year than Alphabet. 

Either Meta Platforms and Roku are due for declines, or Alphabet is due for a rally. Both scenarios are also possible. Meanwhile, Alphabet reported 3% YoY revenue growth and a net income decline of 8.4% YoY. Both of those numbers are more impressive than what investors found in the earning reports from Meta Platforms and Roku, making Alphabet one of the undervalued tech stocks to buy.

Qualcomm (QCOM)

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Qualcomm (NASDAQ:QCOM) is only up 11% YTD, despite the company’s position as an artificial intelligence (AI) chip maker. The P/E ratio of 13 makes the company worth a closer look, and investors get to collect dividends while they wait for the price to rise. Qualcomm recently hiked its quarterly dividend from $0.75 to $0.80, representing a 6.67% YoY increase. 

The company’s low valuation and underperformance can be explained by its two recent subpar earnings reports. In the most recent report, Qualcomm reported a 16% YoY revenue decrease and a net income decrease of 41.9%. Qualcomm’s CEO emphasized that the company is focusing on driving long-term value, despite navigating in the currently tumultuous environment.

Qualcomm has maintained solid profit margins for a while and has continued that trend in a challenging macroeconomic environment. The company’s valuation and growth potential from artificial intelligence make it a cheap tech stock to consider.

On this date of publication, Marc Guberti held a long position in QCOM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Marc Guberti is a finance freelance writer at InvestorPlace.com who hosts the Breakthrough Success Podcast. He has contributed to several publications, including the U.S. News & World Report, Benzinga, and Joy Wallet.

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