The technology sector is popular among investors. Tech stocks provide a significant opportunity for high growth and capital returns. While investors are sweating due to several companies’ high valuations, there are a few stocks that are trading at attractive multiples.
Let’s look at two attractive tech stocks.
Autodesk has underperformed the S&P 500 lately
Autodesk (ADSK) shares have gained just over 5% in the last 12 months. In comparison, the S&P 500 has risen 8.3% and the Technology Select Sector SPDR ETF (XLK) has returned 16% in the last year.
Autodesk is one of the largest digital design solutions providers. The company has designed products across industry verticals including manufacturing, construction, and civil engineering. Autodesk also provides training and consultation services for its products.
Autodesk’s AutoCad leads the computer-aided design market with a share of 36.2%. Another tech stock in the market is Dassault Systems, which as a share of 9.5%. Autodesk’s market leadership in industrial design software makes it attractive to investors.
The addressable market continues to expand. Analysts expect Autodesk to grow its sales 26.7% to $3.26 billion in fiscal 2020 (ending in January) and 21.8% to $3.96 billion in 2021. The company’s earnings will likely rise 173.3% in 2020 and 63% in 2021. Autodesk’s earnings will likely increase at an annual rate of 80.3% over the next five years.
Compared to the stock’s forward PE ratio of 31.6x, you can see that it has significant upside potential. Autodesk is valued at $31.26 billion or 10x forward sales, which might seem expensive. However, the company’s encouraging growth metrics make it a bargain buy.
Autodesk has gained 158% in the last five years—compared to its earnings growth of 8.7% during that period. Analysts tracking Autodesk have a 12-month average target price of $174, which indicates an upside potential of 22%.
Nokia has underperformed tech stocks and ETFs
Nokia (NOK) has successfully pivoted from the mobile manufacturing segment. Now, the company is one of the top three telecom equipment companies in the world. Nokia struggled to increase investor wealth over the years. The company lost close to 40% in the last five years. As a result, Nokia has grossly underperformed tech stocks and its peers.
The upcoming transition to 5G gives Nokia a significant opportunity. The shift to 5G is widely anticipated by enterprises, individuals, and governments. The ban on Huawei by the US and other countries might help Nokia increase its market share. The stock got a minor boost after Ericsson’s impressive quarterly results on Thursday.
Analysts expect Nokia’s sales to fall 2.3% to $26.02 billion in 2019 and rise 2.8% to $26.75 billion in 2020. The company’s earnings will likely fall 3.7% in 2019. Nokia will likely rise 50% in 2020 and at an annual rate of 23.9% over the next five years.
Compared to the stock’s forward PE ratio of 13.3x, you can see that it has significant upside potential. Nokia also has a dividend yield of 4.4%, which makes it a solid pick for income investors.
The company is valued at $29.25 billion or 1.12x forward sales. Analysts tracking Nokia have a 12-month average target price of $6.61, which indicates an upside potential of 27%.
Market Realist analyst Aditya Raghunath doesn’t have a position in any of the stocks mentioned above.
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