We recently compiled a list of the 7 Cheap Technology Stocks To Buy Right Now. In this article, we are going to take a look at where Concentrix Corp. (NASDAQ:CNXC) stands against the other cheap technology stocks.
Are Tech Stocks an Opportunity?
Before the Fed announced its September cut, analysts everywhere had clashing opinions with some supporting the 25 basis-point rate cut, and others supporting a massive 50. Even after the decision was announced, all of these analysts maintained their previous positions and continued supporting or opposing the 50 basis-point rate cut. A general advice to investors has been to remain calm and look for opportunities in stocks that could benefit from a lower interest rate environment.
Following the new interest rate announcement, Fed Chair Jerome Powell addressed reporters, affirming the Fed’s commitment to timely monetary policy adjustments. He clarified that the decision to cut rates was based on economic data and emphasized patience in navigating the current economic landscape characterized by high inflation and low unemployment. We covered this earlier in our 10 Worst Artificial Intelligence (AI) Stocks To Buy According to Financial Media article, here’s an excerpt from it:
“In response to a question about whether the rate cut was influenced by recent employment data or the high nominal level of the federal funds rate, he clarified that their policy position was established in July 2023, a period characterized by high inflation and low unemployment. He highlighted their patience in reducing the policy rate, noting that other central banks had already implemented multiple cuts while the Fed had refrained from such actions until now. This patience has reportedly paid off, as there is now greater confidence that inflation is trending sustainably toward the 2% target.
Powell indicated that the recent rate cut should not be interpreted as a new pace for future adjustments but rather as part of a recalibration of policy toward a more neutral level. He referred to the Summary of Economic Projections (S.E.P.) as a guide for understanding potential future cuts, emphasizing that economic developments could lead to adjustments in either direction.”
On September 23, RaeAnn Mitrione, Investment Management Partner at Callan Family Office, appeared in an interview on CNBC and highlighted significant market developments following the Fed’s unexpectedly larger-than-anticipated rate cut last week. This reduction has led to a notable outperformance of the tech sector compared to cyclical and industrial stocks, suggesting a positive market sentiment. Mitrione emphasized that the market is reacting favorably to lower interest rates, particularly benefiting the tech sector. She noted that this trend of broadening out in the market was evident even before the rate cut, with small-cap stocks performing well alongside cyclical sectors. The ongoing theme of AI is expected to continue driving growth within tech for the foreseeable future.
Pointing at a chart, Mitrione remarked that it is unusual to see rate cuts while markets are at record highs, raising questions about potential volatility ahead. Historically, even when rate cuts occur near market peaks, stocks often continue to rise. Much of this positive sentiment has been priced in due to prior indications of the rate cut. She explained that the economy remains strong, and the rate cut serves as a preventive measure rather than a reaction to economic weakness. This supportive environment could enhance consumer confidence and spending, further improving market performance.
As the Personal Consumption Expenditures (PCE) report is coming up on Friday, Mitrione discussed its significance as it informs the Fed’s inflation assessments. While there is a general understanding of the Fed’s direction based on recent economic projections, the focus has shifted more toward employment data. She anticipates that barring any unexpected figures from the PCE report, markets should continue their upward trajectory as rate cuts are likely to persist.
She also shared insights from her research since July 10th, focusing on small-cap stocks, value versus growth dynamics, and their implications for future performance. She observed that expectations regarding these sectors have largely been factored into current prices. Notably, since July 10th, there has been a 10% divergence between growth and value indexes; while growth has slightly declined, value stocks have risen by nearly 8%, with small caps seeing a 10% increase. With interest rates decreasing, small-cap companies are positioned to benefit significantly due to their higher levels of debt and greater exposure to floating rates compared to large-cap firms.
Overall, her analysis underscores a cautiously optimistic outlook for the markets as they navigate through these developments, particularly with tech stocks continuing to lead in performance amidst changing economic conditions. In that context, we’re bringing you a list of the 7 cheap technology stocks to buy right now.
Methodology
We used the Finviz stock screener to compile a list of 20 tech stocks with a forward P/E ratio under 20. We then selected the 7 cheapest stocks that were the most popular among elite hedge funds, and that analysts were bullish on. The stocks are ranked in ascending order of their average upside potential.
Note: The data is sourced as of September 20, 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A digital dashboard detailing customer experience/user experience data.
Concentrix Corp. (NASDAQ:CNXC)
Forward Price-to-Earnings Ratio: 4.8
Average Upside Potential: 34.11%
Number of Hedge Fund Holders: 25
Concentrix Corp. (NASDAQ:CNXC) is a global customer experience solutions company that provides a wide range of services, including customer care, technical support, sales, and marketing, serving a diverse customer base across various industries, such as technology, retail, travel, banking, automotive, energy, communications, and healthcare.
In Q2, the company won a deal with a major global retail e-commerce client. By combining GenAI tools, CX expertise, and global reach, it designed and implemented a new customer solution experience across its EMEA operations, leading to a 20% increase in revenue.
It also secured a new large global media client. The company will support the launch of its high-profile channel in EMEA and consolidate its customer experience operations in Japan and Korea, additionally building a GenAI knowledge management solution for its enterprise.
Another notable win was with a global travel client. The company leveraged its AI footprint and AI-based training tools to enhance effectiveness and efficiency, presenting an opportunity for future revenue growth as the client considers expanding its AI solution across their enterprise.
Finally, it sold Catalyst Services to a former Webhelp client in Europe, providing specialized digital engineering resources to build, enhance, and maintain its digital infrastructure and CCaaS platform, supporting its primary channel for new business.
The second quarter revenue was $2.38 billion, up 47.44% year-over-year, with an earnings per share value of $2.69. Travel and e-commerce clients grew 10% year-over-year. Revenue from banking, financial services, and insurance clients grew 6% and other verticals grew 3%. Technology and consumer electronics clients grew by over 3%. Revenue from telco and media clients decreased 3% year-over-year primarily due to lower volumes from a few North American communications clients.
GenAI is becoming a competitive advantage for the company and is being used to augment human advisors and upgrade existing systems. The Concentrix Corp. (NASDAQ:CNXC) is experiencing strong growth due to increased client demand and stable volumes.
FPA Queens Road Small Cap Value Fund stated the following regarding Concentrix Corporation (NASDAQ:CNXC) in its first quarter 2024 investor letter:
“Concentrix Corporation (NASDAQ:CNXC) is one of two top customer experience (CX) vendors globally. The company started managing call centers but has since evolved into a high-tech business process outsourcer (BPO) that also designs and manages customer-facing websites and apps, integrates the data, and optimizes a client’s customer interactions. The company was spun out from TD Synnex, another of the Fund’s core holdings, and we have always been impressed with the company’s innovation and growth. CX is a relatively new business model, and Concentrix has been rolling up smaller competitors. In March, 2023 they bought WebHelp, a leading European CX player, for $4.8B in cash and stock. We believe the WebHelp acquisition will help consolidate an industry where Concentrix and Teleperformance are the largest players.
On Jan. 24, 2024 Concentrix reported Fiscal 2023 earnings that included weak 1% – 3% organic growth guidance for 2024. The market’s current concern about the potential of artificial intelligence to disrupt Concentrix’ core call center business has resulted in the underperformance in the shares across the industry. Concentrix has three turns of debt from the Webhelp deal which will be a problem if earnings deteriorate quickly. But Concentrix now trades at less than five times adjusted EPS. We think, but don’t know, that Concentrix’ domain knowledge and integration into customers’ workflows make for meaningful switching costs. We have held on to our Concentrix shares but have not added to the position.”
Overall CNXC ranks 6th on our list of the cheap technology stocks to buy right now. While we acknowledge the potential of CNXC as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CNXC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
