Technology stocks have been among the hardest hit in 2022’s bear market. The tech-heavy Nasdaq is down 33% year to date, while the S&P 500 is down less than 20% and the Dow Jones Industrial Average is off by less than 10%. But just as the sector tends to lead the market lower, it also tends to lead the market higher. In other words, tech stocks may be among the first to rebound during the next bull market, making this a good time to start searching for the best tech stocks to buy.
Of course, when the next bull market will begin is anyone’s guess. The Federal Reserve will likely continue to hike its benchmark interest rate through the spring. Therefore, investors should expect more downside pressure from headwinds associated with higher borrowing costs and the increasing likelihood of a recession.
That being said, the names below are ones investors should keep on their watch lists. And, for hardened contrarians, they are the best tech stocks to buy now.
Best Tech Stocks to Buy: Micron Technology (MU)
Headquartered in Boise, Idaho, Micron Technology (NASDAQ:MU) is a producer of computer memory and computer data storage including dynamic random-access memory, flash memory and USB flash drives. Semiconductor stocks have been slammed this year as the sector entered a cyclical downturn spurred by a slowing economy and a fall-off in demand following a pandemic-led surge. Chip shortages turned into a supply glut and semi stocks plummeted.
While chip demand has slowed from its pandemic boom, the longer-term trend remains clear. For instance, Mordor Intelligence projects the NAND flash memory market will reach $94.24 billion by 2027, growing at a compound annual rate of 5.3%. And according to Vantage Market Research, the USB memory market will see a compound annual growth rate of 7.1%, hitting $10.75 billion in 2028.
On a year-to-date basis, MU is down nearly 45%. Although, over the past six months, shares have declined just 7%. MU is trading at 6.7 times trailing 12-month earnings, below the sector median of 16.9. Taking a shot on this undervalued chip stock now could pay off handsomely down the road.
Based in Geneva, Switzerland, STMicroelectronics (NYSE:STM) manufactures and sells semiconductor products that “enable smarter mobility, more efficient power and energy management, and the wide-scale deployment of the Internet of Things and connectivity.”
Shares are down 25% year to date. However, they are up more than 10% over the past six months, perhaps signaling that the worst is behind the stock.
Fundamentally, STMicroelectronics looks solid. Its three-year free cash flow growth rate and book growth rate stand at 28.3% and 13.1%, respectively. On both metrics, the company ranks above 60% of its peers.
On the bottom line, STMicroelectronics enjoys an operating margin of 27.2%, better than nearly 86% of the industry. It also features a return on equity of 36.4%, better than 93% of the industry, reflecting its superior ability to convert equity financing into profits. The balance sheet undergirds all this, particularly an Altman Z-Score of 5, putting STM in the safe zone in terms of bankruptcy risk.
Overall, you’re looking at one of the best tech stocks to buy now.
Best Tech Stocks to Buy: Skyworks Solutions (SWKS)
Headquartered in Irvine, California, Skyworks Solutions (NASDAQ:SWKS) manufactures high-performance analog semiconductors for use in radio frequency and mobile communications systems. Essentially, the company’s products undergird the industries of tomorrow, such as 5G and the Internet of Things.
Despite significant relevancies, the stock has lost 41% of its value this year. However, shares appear to be stabilizing. Since hitting a 52-week low in mid-October, SWKS is up 20%.
Investors should take note of Skyworks’ profit margins. Its gross margin of 47.5% is better than 77% of its competitors, implying greater flexibility toward economies of scale. Adding to this assessment are strong operating and net margins, potentially affording Skyworks superior pricing power.
Finally, shares are trading at less than 9 times forward earnings, below the sector median of 17.3.
Cognizant Technology (CTSH)
Operating out of Teaneck, New Jersey, Cognizant Technology (NASDAQ:CTSH) is a multinational information technology services and consulting company that provides business process services, cloud-computing applications, industrial automation and artificial intelligence services.
Since the January opener, CTSH stock is down 38%, weighed down by macroeconomic headwinds. This includes a sharp post-earnings sell-off in early November after the company’s Q3 results missed expectations and management lowered its guidance. This was followed by a number of analyst downgrades.
However, SeekingAlpha contributor David Waldron thinks these downgrades are short-sighted, calling CTSH “Wall Street’s latest bargain bin giveaway.” He writes: “Cognizant is a low-leveraged, high-functioning global IT services player with a contemporary business model, solid fundamentals, and a discounted stock price supported by below-average downside risks.”
While broader economic uncertainty remains, the company offers a stable balance sheet and deeply undervalued shares. It Altman Z-Score of over 6 reflects low bankruptcy risk, while shares trade at 11.7 times forward earnings, well below the industry median of 23.3.
Best Tech Stocks to Buy: Wipro (WIT)
An Indian multinational corporation, Wipro (NYSE:WIT) provides information technology, consulting and business process services. Per its corporate profile, the company’s capabilities cover cloud computing, cybersecurity, digital transformation, artificial intelligence, robotics, data analytics and other technology consulting services.
Shares are down 53% on a year-to-date basis and likely carry more risk than most of the names on this list due to their penny-stock status. WIT currently trades at $4.58 a share.
That said, Wipro may be attractive to investors because it offers exposure to India’s tech market. Notably, the IT market accounts for more than 9% of India’s GDP.
Wipro features excellent profitability metrics, including a return on equity of 16.9%, a return on assets of 10.6%, and a return on invested capital of 16.1%. Each of these metrics ranks better than more than 80% of the competition.
Finally, WIT trades at 15.8 times forward earnings, well below the sector median of 23.2, making it an intriguing idea among the best tech stocks to buy now.
Headquartered in Foster City, California, Qualys (NASDAQ:QLYS) provides cloud security through a software-as-a-service model, as well as compliance and related services. The company has over 10,000 customers in more than 130 countries, per its public profile. Further, Qualys enjoys strategic partnerships with major cloud providers, managed service providers and consulting organizations.
Fair warning: This stock is volatile. Shares are down 30% from their mid-September high. However, QLYS is currently outperforming the Nasdaq and the S&P 500 on a year-to-date basis, down a little more than 18%.
With cybersecurity attacks on the rise, QLYS looks attractive. Research from Check Point Software Technologies (NASDAQ:CHKP) shows a 28% year-over-year increase in global cyberattacks in the third quarter of 2022. Meanwhile, the average number of attacks per organization worldwide was over 1,130 a week. In other words, Qualys’ services are likely to be in high demand.
Additionally, the company enjoys strong profit margins, solid revenue growth and decent stability in the balance sheet.
Best Tech Stocks to Buy: Endava (DAVA)
Based in London, Endava (NYSE:DAVA) provides digital transformation consulting, agile software development services and various automation solutions, per its public profile. Shares are down 55% year to date. However, the stock has stabilized recently, up 22% from its 52-week low, made in mid-October.
On the income statement, Endava boasts a three-year revenue growth rate of 28%, beating out 84% of the competition. Further, its free cash flow growth rate during the same period is 52.1%, better than nearly 86% of its rivals.
On the bottom line, the company features a net margin of 13.3% compared with an industry median of 1.5%. Finally, Endava benefits from a solid balance sheet, particularly its equity-to-asset ratio of 0.7, which is better than 69% of the industry. As well, its Altman Z-Score is over 14, reflecting extremely low bankruptcy risk.
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.