Tech stocks have been wealth creators for a few decades now. In this article, we will analyze tech stocks that should be on the radar of contrarian investors. Investopedia defines contrarian investing as “an investment style in which investors purposefully go against prevailing market trends by selling when others are buying, and buying when most investors are selling.”
The ongoing US-China trade war is impacting several tech stocks. Further, a sluggish macro environment and a slowdown in technology spending have hurt tech stocks as well. The three tech stocks discussed have significant upside potential. They should be a good bet before the potential recession, which will drag the broader indices and stocks lower.
A leader among China’s tech stocks
Baidu (BIDU) is referred to as China’s Google. It’s valued at $35.9 billion and is one of China’s top tech stocks. Baidu is currently trading at $102.6, which is 62% lower than its price of $272 in May 2018. The stock lost significant value because of the US-China trade war escalations, China’s slowing domestic economy, and worries over falling profits. Currently, the stock is trading 10% above its 52-week low.
Baidu had impressive Q2 results that beat revenue and earnings estimates. Additionally, Baidu’s tech stock should be benefitting from easing trade tensions. Hopefully, the two largest economies, the US and China, will find a solution as soon as possible.
Baidu stock is trading at a forward PE multiple of 16.2x. While analysts expect earnings to fall by 54.7% in 2019, they are expecting earnings to rise by 42.2% in 2020. It looks like the stock is undervalued. Analysts have set a 12-month price target of $146.74 for Baidu. This shows an upside potential of 44% from the current price.
Sina is trading at a discount of 38%
The US-China trade war and slowing revenue growth have also hit Sina Corporation (SINA), a Chinese technology company. However, sales spiked 53.6% to $1.58 billion in 2017. In 2018, sales rose by 33.1% to $2.1 billion. Analysts expect sales to rise by only 3.8% to $2.2 billion in 2019.
However, the tech stock fell from $121 in March 2018 to $33 in August this year. Currently, Sina is trading at $42.66. While the stock rose 7% in June this year, these returns were quickly wiped out as the trade war escalated. Sina shares have staged a comeback after its Q2 results.
Sina’s revenue growth is set to accelerate. Analysts estimate sales to grow by 11.2% to $2.43 billion in 2020 and 10.2% to $2.7 billion in 2019. Sina stock is trading at a forward PE multiple of 14.2x. While the company’s earnings are estimated to fall by 22.8% in 2019, they are expected to rise by 27% in 2020. Analysts have a 12-month price target of $58.7 for Sina. This shows an upside potential of 38% from the current price.
Square tech stocks volatile but profitable
Since it was publicly listed in November 2015, Square (SQ) has been a winner among tech stocks. The stock rose from $8.8 in February 2016 to $101.2 in October 2018. Currently, Square is trading at $62. While tech stocks have been volatile since the start of 2018, several companies have made a strong comeback in 2019. However, Square has underperformed markets this year and has gained 10.5% year-to-date.
Square’s slowing revenue growth is concerning. The company can expect to grow sales by 43.2% in 2019 and 34.1% in 2020. Square’s bottom-line can expect to rise by 63.8% in 2019, 44.2% in 2020, and at an annual rate of 46% in the next five years.
Square’s future is bright
Square stock is trading at a forward PE multiple of 55.7x, which is not too high considering its growth rates. The company’s growth drivers are solid as the general population is moving towards cashless payments at a global level.
The total addressable market is worth trillions of dollars. Square should gain significant traction going forward. The company will look to expand in international markets as well. Analysts have set a 12-month price target of $82.88 for Square. This shows an upside potential of 33.7% from the current price.