Making their way onto the coveted Zacks Rank #1 (Strong Buy) list, several tech stocks are emerging as standouts in terms of their affordability.
Attesting to their strong buy rating is that these affordable tech stocks are benefiting from a positive trend of earnings estimate revisions. Furthermore, the attractive valuations of these top-rated tech stocks also supports the notion that they are indeed cheap at their current levels.
While it’s not always easy to find these types of bargains in the tech sector that may potentially come to fruition in regard to more upside, these companies belong to top-rated business industries.
This adds the cherry on top, as studies have shown that 50% of a stock’s price movement can be attributed to its industry. In fact, an average stock in a strong group is likely to outperform a great stock in a poor group.
Considering this favorable scenario, it’s time to buy these three cheap tech stocks.
Cheap Stocks in The Zacks Internet-Software Industry
The Zacks Internet-Software Industry is currently in the top 32% of over 240 Zacks industries, and is home to a slew of companies that are renowned for their innovative tech offerings. Perhaps the most noteworthy is Microsoft MSFT, which can single-handedly lift its internet software peers and the broader tech sector, thanks to the company's extensive reach of tech offerings and collaborations.
Interestingly enough, Udemy UDMY is an example of this, as a developer of educational software solutions, including extensive training for Microsoft products. Although there is no formal partnership, Udemy is used by companies to train employees in Microsoft tools, among other technologies and business services.
Launching its IPO in 2021, Udemy’s increased profitability is starting to stand out after exceeding the Zacks EPS Consensus in each of its last four quarterly reports. Udemy’s annual earnings are now expected to skyrocket 194% in fiscal 2025 to $0.47 a share versus EPS of $0.16 last year. Plus, FY26 EPS is projected to increase another 24% to $0.58. More intriguing, at $7 a share, UDMY trades at a reasonable 15X forward earnings multiple, especially considering Udemy’s projected EPS growth.
Image Source: Zacks Investment ResearchAnother emerging company in the internet software space is StoneCo STNE, with its stock trading under $15 a share and just 8.5X forward earnings. Public since 2018, StoneCo’s expansion as a fintech firm that offers a cloud-based technology platform for e-commerce channels in South America isn’t overwhelming, but does look underappreciated.
To that point, StoneCo is bringing in over $2 billion in annual sales, with EPS expected to rise 10% this year and forecasted to increase another 16% in FY26 to $1.73. Reassuringly, StoneCo has exceeded earnings expectations in three of its last four quarterly reports, and FY25 and FY26 EPS estimates are both up roughly 5% in the last 60 days.
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Hewlett Packard – HPE
Stock Price: $19
Hewlett Packard HPE doesn’t need quite the introduction as the other cheap tech stocks on this list, and appears to be creating an opportunity at under $20 a share. Belonging to the Zacks Computer-Integrated Systems Industry, which is in the top 16% of all Zacks industries, the risk-to-reward looks favorable to invest in HPE at 10X forward earnings.
Offering a considerable discount to the industry average of 24.9X forward earnings, HPE also trades at less than 1X sales. Plus, Hewlett Packard most recently surpassed $1 billion in AI systems revenue during Q2 and saw its Annualized Revenue Run Rate (ARR) spike 47% year over year to $2.2 billion, driven by AI cloud services. This comes as the company has very appealing core AI offerings, including HPE GreenLake, which supports AI model training, inferencing, and data management. Additionally, Hewlett Packard has developed generative AI solutions through a collaboration with Nvidia NVDA.
Indicative of Hewlett Packard’s ability to adapt to the new age of computer hardware and software systems, the company‘s top line is projected to expand over 14% in FY25 and FY26, with projections edging toward $40 billion. Following a tougher to compete against operating year, Hewlett Packard’s EPS is expected to dip 4% in FY25 but is forecasted to rebound and climb 20% in FY26 to $2.30. Even better, FY25 and FY26 EPS estimates are up 4% and 10% over the last two months, respectively.
Image Source: Zacks Investment ResearchAdding more value, HPE offers a generous 2.6% annual dividend yield that noticeably tops the industry average of 1.13% and the S&P 500’s average of 1.17%.
Image Source: Zacks Investment Research
Bottom Line
It’s hard to overlook these highly ranked tech stocks at the moment, especially as beneficiaries of strong business industries. Considering their reasonable valuations, Hewlett Packard, StoneCo, and Udemy stock may be in store for a bounce higher in the near future, but are also starting to be worthy of consideration as long-term investments.
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Hewlett Packard Enterprise Company (HPE): Free Stock Analysis Report StoneCo Ltd. (STNE): Free Stock Analysis Report Udemy, Inc. (UDMY): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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