The tech industry is witnessing rapid growth due to the increasing adoption of emerging technologies and growing demand for cloud-based solutions cross diverse industries. Given the favorable industry trends, quality tech stocks Knowles Corporation (KN), Spirent Communications plc (SPMYY), and Ceragon Networks Ltd. (CRNT) look poised to outpace the market this month.
The growing popularity of cloud-based software and the rising inclination to automate business processes are continuously increasing the demand for IT services worldwide. Cloud-based IT services are experiencing rapid growth among SMEs and are expected to capture more than 80% of the market share by 2025.
Global IT Services market is expected to grow at a CAGR of 8% until 2025.
Gartner predicts global IT spending will reach $5.10 trillion in 2024, reflecting an 8% year-over-year increase. Global spending on public cloud services is forecast to increase by 20.4% in 2024, driven by cloud vendor price increases and increased utilization.
The increasing need to store data amid the growing usages of data analytics, AI, blockchain, IoT, cloud computing, and all Internet-based services is driving demand for advanced hardware. The IT hardware market is projected to grow at a CAGR of 7.9% to reach $177.11 billion by 2028.
With these favorable trends in mind, let's delve into the fundamentals of the three best stock picks.
Knowles Corporation (KN)
KN offers micro-acoustic microphones and balanced armature speakers, audio solutions, high performance capacitors, and radio frequency products for the consumer electronics, medtech, defense, electric vehicle, industrial, and communications markets. It operates through three segments: Precision Devices (PD); Medtech & Specialty Audio (MSA); and Consumer MEMS Microphones (CMM).
KN’s trailing-12-month EBIT margin of 8% is 66.8% higher than the industry average of 4.77%, while its trailing-12-month levered FCF margin of 13.16% is 59.7% higher than the industry average of 8.24%.
KN’s revenues for the fiscal third quarter ended September 30, 2023, came in at $175.10 million. Its net earnings rose 514.8% year-over-year to $16.60 million. Its net earnings per share increased 20% year-over-year to $0.18. Its gross profit increased 93.8% year-over-year to $77.50 million.
Analysts expect KN’s revenue for the fourth quarter ending December 31, 2023, to increase 9.2% year-over-year to $215.23 million. Its EPS is expected to be $0.30 for the same quarter. Also, the company topped the consensus EPS estimates in each of the four trailing quarters, which is impressive.
The stock has gained 12.4% over the past three months to close the last trading session at $16.28.
KN’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade in Growth, Sentiment, and Quality. It is ranked #8 out of 39 stocks in the B-rated Technology - Electronics industry.
Click here to see the other ratings of KN (Value, Momentum, and Stability).
Spirent Communications plc (SPMYY)
Headquartered in Crawley, the United Kingdom, SPMYY offers automated test and assurance solutions in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company operates in Lifecycle Service Assurance and Networks & Security segments.
On December 6, 2023, SPMYY announced a strategic partnership with Anritsu to enable the automotive industry to more efficiently meet the unique testing requirements presented by cellular vehicle-to-everything (C-V2X) and autonomous driving technologies. The collaboration establishes a complete C-V2X and automotive 5G testing portfolio with a unified framework that delivers unparalleled versatility and adaptability to verify designs incorporating autonomous driving technologies.
On October 31, 2023, SPMYY announced a collaboration with Cadence Design Systems, Inc., to deliver a joint networking system-on-chip (SoC) verification solution that bridges the gap between pre-silicon and post-silicon verification.
For the first half of 2023, SPMYY’s revenue amounted to $223.90 million, while its adjusted operating profit came in at $11.60 million. Moreover, the company’s adjusted profit before tax and EPS stood at $14.80 million and $2.10, respectively.
Street expects SPMYY’s revenue for the fiscal year ending December 2023 to be $492.10 million.
Shares of SPMYY increased 14% over the past month to close the last trading session at $5.55.
SPMYY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Stability and Quality and a B in Value. Within the Technology - Hardware industry, it is ranked #2 out of 43 stocks.
Beyond what is stated above, we’ve also rated SPMYY for Growth, Momentum, and Sentiment. Get all SPMYY ratings here.
Ceragon Networks Ltd. (CRNT)
Headquartered in Rosh HaAyin, Israel, CRNT provides wireless transport solutions for cellular operators and other wireless service providers. Its solutions use microwave and millimeter wave radio technology to transfer telecommunication traffic between base stations, small/distributed cells, and service provider's network.
On December 5, 2023, CRNT announced that it had completed the previously announced acquisition of Siklu, a provider of multi-Gigabit "wireless fiber" connectivity in urban, suburban and rural areas. The acquisition creates a more comprehensive, end-to-end offering ideally targeted to small service providers and private networks around the world. In particular, the combination gives CRNT immediate access to Siklu's established leadership in the millimeter-wave market in North America including its Fixed Wireless Access offering.
In terms of the trailing-12-month CAPEX/Sales, CRNT’s 2.66% is 13.9% higher than the 2.33% industry average. Likewise, its 1.10x trailing-12-month asset turnover ratio is 78.2% higher than the industry average of 0.62x.
For the third quarter ended September 30, 2023, CRNT’s revenues increased 10.9% year-over-year to $87.26 million, while its gross profit increased 8.9% year-over-year to $30.27 million. Its net income for the same quarter came in at $3.37 million, compared to a loss of $863 thousand in the previous-year quarter. Also, its net income per share came in at $0.04, compared to negative $0.01 in the previous-year quarter.
CRNT’s revenue for fiscal year ending December 2023 is expected to increase 15.7% year-over-year to $341.37 million. It surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.
Over the past month, the stock has surged 6.9% to close the last trading session at $1.87.
It’s no surprise that CRNT has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Sentiment and Value and a B in Growth. Within the Technology - Communication/Networking industry, it is ranked #2 out of 46 stocks.
In addition to the POWR Ratings stated above, one can access CRNT's ratings for Momentum, Quality, and Stability here.
What To Do Next?
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KN shares were trading at $16.32 per share on Tuesday morning, up $0.04 (+0.25%). Year-to-date, KN has declined -0.61%, versus a 22.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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