As coronavirus fears continue rattling markets worldwide, four high-quality technology companies from the U.S. and Asian markets that are trading below the Peter Lynch earnings line are Intel Corp. (INTC, Financial), Thinking Electronic Industrial Co. Ltd. (TPE:2428, Financial), TSC Auto ID Technology Corp. (ROCO:3611, Financial) and Data Applications Co. Ltd. (TSE:3848, Financial) according to the All-in-One Screener, a popular GuruFocus Premium feature.
Coronavirus fears continue rattling markets, yet tech analyst remains bullish
Fears of the coronavirus outbreak continued throttling markets around the globe: The Dow Jones Industrial Average closed at 23,851.02, down 2,013.76 points from last Friday’s close of 25,864.78. The 30-stock index’s 7.79% drop is the worst since the 2008 financial crisis. Likewise, the pan-European Stoxx 600 closed at 340.83, down 7% for the day and over 20% from the year high of 433.90.
Apple Inc. (AAPL, Financial), the top holding of Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial), closed at $266.17, down 7.91% from the previous close of $280.93. Despite this, Wedbush analyst Daniel Ives said in a note that investors should “focus on tech winners on the next 5-10 years." According to CNBC, Ives said that the supply chain issues caused by the coronavirus represent a "short-lived” shock event and that iPhone demand should normalize during the second half of the year.
As such, investors might seek opportunities in high-quality technology companies that are now trading below the Peter Lynch earnings line in light of the deep market selloff. High-quality companies have high financial strength, strong profitability, good predictability of revenue and earnings and high returns on equity and capital.
Peter Lynch, the legendary investor who managed the Fidelity Magellan Fund during the 1980s, said in his book “One Up on Wall Street” that a quick way to determine if the stock is undervalued is to compare the price line to the earnings line, which is drawn at a price-earnings ratio of 15. A stock is undervalued if the price line falls below the earnings line, i.e., if the price-earnings ratio is less than 15.
Intel
Santa Clara, California-based Intel designs and manufacturers microprocessors and platform solutions for the global personal computer and data center markets. GuruFocus ranks the company’s profitability 9 out of 10 on several positive investing signs, which include a four-star business predictability rank and an operating margin that has increased approximately 4.10% per year over the past five years and is outperforming over 95% of global competitors.
Intel’s price-earnings ratio of 10.92 outperforms 80.41% of global semiconductors. The company is also undervalued based on its Peter Lynch fair value, which equals the product of Intel’s five-year Ebitda growth rate and the earnings per share. The Ebitda growth rate is less subject to manipulation than the net earnings growth rate.
Gurus with large holdings in Intel include Ken Fisher (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio).
Thinking Electronic Industrial
Thinking Electronic Industrial provides a broad line of protective circuit components, including over-voltage protection, over-temperature protection and over-current protection. GuruFocus ranks the Taiwanese electronic company’s financial strength and profitability 9 out of 10 on several positive investing signs, which include robust interest coverage, a strong Altman Z-score of 5.77 and an operating margin that has increased approximately 9.10% per year over the past five years and is outperforming over 95% of global competitors.
Thinking Electronic Industrial’s price-earnings ratio of 10.56 outperforms 77.17% of global competitors.
TSC Auto ID Technology
TSC Auto ID Technology manufactures, markets and designs thermal bar code label printers. GuruFocus ranks the Taiwanese hardware company’s profitability 9 out of 10 on several positive investing signs, which include net margins and returns outperforming over 92% of global competitors despite operating margins contracting over the past five years.
TSC Auto ID Technology’s price-earnings ratio of 12.83 is near a one-year low and outperforms 67.69% of global competitors.
Data Applications
Data Applications develops and maintains infrastructure software products, which are applied in business process support in companies. GuruFocus ranks the Japanese application software company’s financial strength 10 out of 10 on several positive investing signs, which include no long-term debt, a strong Altman Z-score of 6.83 and an equity-to-asset ratio that outperforms 89.94% of global competitors.
Other safe investing signs include expanding operating margins and price valuations near two-year lows. Data Applications’ price-earnings ratio of 10.84 outperforms 82.13% of global software companies.
Disclosure: No positions.
Read more here:
- 3 Five-Star Companies at Historically Low Price-Sales Ratios
- Value Screeners Seek Opportunities in Coronavirus-Driven Market
- Warren Buffett’s Market Indicator Falls From All-Time High
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