5 Undervalued Predictable Tech Opportunities

OSI Systems recently qualified for the screener

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Jan 26, 2022
Summary
  • TD Synnex, Fair Isaac, Apple, Micron Technology and OSI Systems are trading at a discount.
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U.S. market indexes were higher on Wednesday morning following several volatile days of trading, which were impacted by jitters over rising inflation and the Federal Reserve’s plan to fight it, as well as geopolitical tensions between Russia and Ukraine.

On Wednesday, the Dow Jones Industrial Average was up 0.45%, while the Nasdaq Composite climbed 1.5%. The S&P 500, which is on pace for its worst month since the onset of the pandemic in March 2020, gained 0.93%.

As a result, investors may be interested in finding opportunities among undervalued securities that have predictable performances.

GuruFocus’ Undervalued Predictable Screener, a Premium feature, determines whether a stock is undervalued or overvalued based on two methods: discounted cash flow and discounted earnings.

According to both methods, companies with a discount higher than zero are consider undervalued, while discounts below zero are considered overvalued. The companies’ predictability rates are then determined based on historical performance over the past decade.

Based on these criteria, several tech stocks qualified for the screener as of Jan. 26, which were TD Synnex Corp. (

SNX, Financial), Fair Isaac Corp. (FICO, Financial), Apple Inc. (AAPL, Financial), Micron Technology Inc. (MU, Financial) and newcomer OSI Systems Inc. (OSIS, Financial).

TD Synnex

Shares of TD Synnex (

SNX, Financial) are currently trading 20% below its DCF value of $129 and 37% below its discounted earnings value of $163.

The Fremont, California-based software company, which provides IT solutions, has a $9.75 billion market cap; its shares were trading around $102.13 on Wednesday with a price-earnings ratio of 15.64, a price-book ratio of 1.23and a price-sales ratio of 0.21.

The GF Value Line suggests the stock is fairly valued currently based on historical ratios, past performance and future earnings projections.

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GuruFocus rated TD Synnex’s financial strength 5 out of 10. As a result of issuing approximately $2.9 billion in new long-term debt over the past three years, the company has poor interest coverage. The high Altman Z-Score of 4.34, however, indicates it is in good standing even though assets are building up at a faster rate than revenue is growing. The return on invested capital also slightly surpasses the weighted average cost of capital, so value is being created as the company grows.

The company’s profitability fared even better, scoring an 8 out of 10 rating on the back of operating margin expansion and returns on equity, assets and capital that outperform over half of its competitors. TD Synnex also has a moderate Piotroski F-Score of 6, indicating business conditions are typical for a stable company. Consistent earnings and revenue growth have also contributed to a predictability rank of five out of five stars. According to GuruFocus, companies with this rank return an average of 12.1% annually over a 10-year period.

Of the gurus invested in TD Synnex,

Chuck Royce (Trades, Portfolio) has the largest holding with 0.13% of its outstanding shares. Steven Scruggs (Trades, Portfolio), Keeley-Teton Advisors, LLC (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Scott Black (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) also have positions in the stock.

Fair Isaac

Fair Isaac (

FICO, Financial) shares are trading 11% below the DCF value of $479 and 16% below its discounted earnings value of $509.

The data analytics company based in San Jose, California, which focuses on credit scoring services, has a market cap of $11.62 billion; its shares were trading around $424.75 on Wednesday with a price-earnings ratio of 31.67 and a price-sales ratio of 9.43.

According to the GF Value, the stock is fairly valued currently.

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Fair Isaac’s financial strength was rated 4 out of 10 by GuruFocus. Although the company has been issuing new long-term debt in recent years, it is at a manageable level due to adequate interest coverage. It also has a robust Altman Z-Score of 8.3. Value is being created since the ROIC overshadows the WACC.

The company’s profitability fared even better with a 9 out of 10 rating, driven by operating margin expansion, strong returns that top a majority of industry peers and a moderate Piotroski F-Score of 6. Although revenue per share growth has slowed recently, Fair Isaac still has a four-star predictability rank. GuruFocus says companies with this rank return an average of 9.8% annually.

With 0.51% of its outstanding shares,

Ron Baron (Trades, Portfolio) is Fair Isaac’s largest guru shareholder. Other top guru investors are Ken Fisher (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Royce, Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Greenblatt and Lee Ainslie (Trades, Portfolio).

Apple

Shares of Apple (

AAPL, Financial) are trading 7% above its DCF value of $151, but 1% below its discounted earnings value of $163.

The Cupertino, California-based tech giant, which produces popular consumer electronics like the iPhone, MacBook and Apple Watch, has a $2.66 trillion market cap; its shares were trading around $162.70 on Wednesday with a price-earnings ratio of 28.96, a price-book ratio of 42.38 and a price-sales ratio of 7.51.

Based on the GF Value Line, the stock appears to be significantly overvalued currently.

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GuruFocus rated Apple’s financial strength 5 out of 10. Although the company has issued new long-term debt in recent years, it is still manageable as a result of a comfortable level of interest coverage. The robust Altman Z-Score of 7.59 indicates the company is in good standing. The ROIC also eclipses the WACC by a wide margin, meaning value is being created as the company grows.

The company’s profitability scored a 9 out of 10 rating. Apple is supported by strong margins and returns that outperform a majority of competitors, a high Piotroski F-Score of 7, indicating business conditions are healthy, as well as steady earnings and revenue growth. It also has a five-star predictability rank.

Buffett has the largest stake in Apple with 5.41% of its outstanding shares. Fisher,

Spiros Segalas (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Elfun Trusts (Trades, Portfolio), Simons’ firm and Tom Gayner (Trades, Portfolio) also have significant positions in the stock.

Micron Technology

Micron Technology (

MU, Financial) shares are trading 67% above the DCF value of $50, but 13% below its discounted earnings value of $96.

The manufacturer of DRAM and NAND memory semiconductor chips, which is headquartered in Boise, Idaho, has a market cap of $93.52 billion; its shares were trading around $83.66 on Wednesday with a price-earnings ratio of 12.9, a price-book ratio of 2.05 and a price-sales ratio of 3.21.

The GF Value Line suggests the stock is modestly overvalued.

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Micron’s financial strength was rated 7 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the Altman Z-Score of 5.67 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. Value creation is occurring since the ROIC exceeds the WACC.

The company’s profitability scored a 9 out of 10 rating on the back of an expanding operating margin, strong returns that top a majority of industry peers and a high Piotroski F-Score of 9. Micron’s steady earnings and revenue growth has also resulted in a 4.5-star predictability rank. GuruFocus data shows companies with this rank return, on average, 10.6% annually.

Of the gurus invested in Micron, PRIMCEAP Management has the largest stake with 3.88% of outstanding shares.

Li Lu (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Seth Klarman (Trades, Portfolio), David Tepper (Trades, Portfolio), Simons’ firm, Mohnish Pabrai (Trades, Portfolio) and the Parnassus Endeavor Fund (Trades, Portfolio) also have large holdings.

OSI Systems

A newcomer to the screener, shares of OSI Systems (

OSIS, Financial) are trading 134% above its DCF Value of $37 and 28% above its discounted earnings value of $67.

The Hawthorne, California-based company, which develops and manufactures security and inspection systems such as airport security X-ray machines and metal detectors, medical monitoring systems and optoelectronic devices, has a $1.53 billion market cap; its shares were trading around $85.33 on Wednesday with a price-earnings ratio of 18.69, a price-book ratio of 2.46 and a price-sales ratio of 1.33.

According to the GF Value Line, the stock is currently modestly undervalued.

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GuruFocus rated OSI Systems’ financial strength 5 out of 10. Although the company is supported by adequate interest coverage, the Altman Z-Score of 2.93 indicates it is under some pressure as a result of revenue per share growth slowing down over the past year. The ROIC is also higher than the WACC, so value is being created.

The company’s profitability scored an 8 out of 10 rating. In addition to operating margin expansion, OSI has strong returns that outperform over half of its competitors and a moderate Piotroski F-Score of 6. It also has a four-star predictability rank.

PRIMECAP is OSI’s largest guru shareholder with 2.06% of its outstanding shares. Other guru investors are Simons’ firm, Grantham and Royce.

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I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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