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Sydnee Gatewood
Sydnee Gatewood
Articles (647) 

2 Tech Companies to Consider as US-China Trade War Comes to a Ceasefire

Stocks trading below Peter Lynch value

During the G-20 Summit in Argentina this past weekend, President Donald Trump and Chinese President Xi Jinping agreed to halt new tariffs for 90 days to accommodate trade negotiations, sending stock market indexes higher Monday morning.

One sector that has been severely affected by the ongoing trade dispute is technology, which has seen a selloff in recent weeks. As a result, good investment opportunities may be found among tech companies that are trading below Peter Lynch value.

An investing legend, Lynch developed this method as a way of simplifying his stock-picking process. With the belief that good, stable companies eventually trade at 15 times their annual earnings, he compared the price of a company’s stock over time to its earnings, setting the standard at a price-earnings ratio of 15. Stocks that trade below this standard are often good investments as their share prices are likely to appreciate over time, thereby creating value for shareholders. The All-in-One screener also looked for companies that have business predictability ranks of two or more stars and revenue per share growth of 6% or more per annum over a 10-year period.

The two stocks that met these criteria are CACI International Inc. (NYSE:CACI) and Micron Technology Inc. (NASDAQ:MU).

CACI International

The Virginia-based information technology services company has a market cap of $4.09 billion; its shares were trading around $164.48 on Monday with a price-earnings ratio of 12.30, a price-book ratio of 1.86 and a price-sales ratio of 0.92.

The Peter Lynch chart suggests the stock is undervalued.

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GuruFocus rated CACI International’s financial strength 6 out of 10. Supported by adequate interest coverage, the Altman Z-Score of 3.2 indicates the company is in good fiscal standing. The company’s profitability and growth scored a 7 out of 10 rating, driven by good margins and returns, a high Piotroski F-Score of 7, which means operating conditions are solid, and a business predictability rank of 2.5 out of five stars. According to GuruFocus, companies with this rank have consistent earnings and revenue growth and see their stock prices gain an average of 7.3% per year.

Of the gurus invested in CACI International, Murray Stahl (Trades, Portfolio) has the largest position with 0.72% of outstanding shares. Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Barrow, Hanley, Mewhinney & Strauss, Joel Greenblatt (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) are also shareholders.

Micron Technology

The semiconductor manufacturer, which is headquartered in Boise, Idaho, has a $45.49 billion market cap; its shares were trading around $39.66 on Monday with a price-earnings ratio of3.48, a price-book ratio of 1.44 and a price-sales ratio of 1.62.

According to the Peter Lynch chart, the stock is undervalued.

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Micron’s financial strength was rated 8 out of 10 by GuruFocus. Along with having sufficient interest coverage, the Altman Z-Score of 5.46 suggests the company is fiscally sound. The company’s profitability and growth scored a 9 out of 10 rating, boosted by an expanding operating margin, strong returns, a high Piotroski F-Score of 8 and a 3.5-star business predictability rank. In addition to steady revenue and earnings growth, GuruFocus says companies with this rank typically see their stock prices gain an average of 9.3% per year.

According to the industry overview page, the company is also the sixth-largest player in the semiconductor space with a weight of 4.5%. It falls behind Intel Corp. (NASDAQ:INTC), Broadcom Inc. (NASDAQ:AVGO), Nvidia Corp. (NASDAQ:NVDA), Texas Instruments Inc. (NASDAQ:TXN) and Qualcomm Inc. (NASDAQ:QCOM).

With 5.12% of outstanding shares, PRIMECAP Management (Trades, Portfolio) is the company’s largest guru shareholder. David Tepper (Trades, Portfolio), Donald Smith (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Greenblatt, Grantham, George Soros (Trades, Portfolio), Dalio, the Signature Select Canadian Fund (Trades, Portfolio), Leon Cooperman (Trades, Portfolio) and several other gurus also hold the stock.

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am an editorial assistant at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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alexvemailapprox R2k by mkt cap
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