We recently compiled a list of the 10 Oversold Tech Stocks To Buy Right Now. In this article, we are going to take a look at where STMicroelectronics N.V. (NYSE:STM) stands against the other oversold tech stocks.
In an interview with CNBC on September 30, Dave Sekera, Chief Market Strategist at Morningstar, shared his insights on the current state of the technology sector and the broader market. According to Sekera, the technology sector as a whole is “priced to perfection” and is trading at a 6% premium to fair value.
However, Sekera believes several technology stocks have run up too far trading at over 20% premium to fair value, whereas their sales have been sluggish. Sekera advises taking profits off the table for companies who are trading at a premium to fair value. Sekera’s team is also concerned that the market is overestimating the long-term growth potential of some companies due to artificial intelligence (AI), however, he believes that some of these companies will not benefit enough from AI to justify their current valuation. Sekera recommends four-star rated stocks that are trading at a discount to fair value and suggests swapping out overvalued companies and overextended AI stocks for these companies. Sekera also discussed the broader market, noting that growth stocks have outperformed value stocks for a while. However, he believes that it’s time to look at small-cap and mid-cap value-oriented names and believes that these types of value stocks are due for a rotation.
Sekera notes that the overall US market is currently trading at a 3% premium to fair value. He believes that this rotation into value stocks and small-cap stocks will be driven by the expectation of slowing economic growth in the US and the easing of monetary policy by the Federal Reserve. Historically, small-cap stocks have performed well in these conditions, and value stocks have been left behind in the frenzy to buy AI-related stocks. Sekera expects value stocks to catch up, and he believes that now is a good time to invest in these undervalued stocks.
With the Fed’s dovish stance and the potential for further rate cuts, tech stocks may continue to be a safe haven for investors, with that in context, let’s take a look at the 10 oversold tech stocks to buy right now.
Our Methodology
To compile our list of the 10 oversold tech stocks to buy right now, we used the Finviz and Yahoo stock screeners to find stocks that have fallen significantly on a YTD basis and have a forward P/E of less than 15, as of October 15. We then narrowed our choices to 10 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? 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 smallcap and largecap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A worker assembling the inner circuitry of a semiconductor product.
STMicroelectronics N.V. (NYSE:STM)
Number of Hedge Fund Investors: 16
Forward P/E Ratio as of October 15: 10.55
YTD Performance as of October 15: -43.49%
STMicroelectronics N.V. (NYSE:STM) is a global leader in semiconductor solutions for automotive, industrial, and consumer markets. The company is known for its innovation in integrated circuits and sensors.
STMicroelectronics N.V. (NYSE:STM) is well-positioned to capitalize on the long-term growth prospects of the electric vehicle (EV) market and the increasing electrification and digitalization of cars. The company’s specialized SiC semiconductors are in high demand for EVs, and the EV market is expected to grow at a 6.6% CAGR from 2024 to 2029. Additionally, the increasing connectivity of products in the Industrial segment is expected to drive growth in the Internet of Things (IoT) market.
The company’s financials have been impacted by the current industry normalization and weak end markets, but its long-term track record shows good revenue growth at an 8.0% CAGR from 2014 to current trailing revenues as of Q2. STMicroelectronics N.V. (NYSE:STM) has also spent a significant amount of capital to expand its manufacturing capacity, with capital expenditures trailing at $4.07 billion.
Despite the current uncertainty and short-term headwinds, STMicroelectronics N.V.’s (NYSE:STM) long-term earnings outlook is strong. The company’s specialized products, commitment to growth, and attractive valuation make it a compelling investment opportunity. As the industry normalizes and demand recovers, STMicroelectronics N.V. (NYSE:STM) is well-positioned to capitalize on the growth prospects of the EV and IoT markets. With a consensus Buy rating from industry analysts, the stock has a target price of $39.19, which represents a 35.90% upside potential from its current level.
Overall STM ranks 8th on our list of the oversold tech stocks to buy. While we acknowledge the potential of STM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than STM 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.
