Arrow Electronics Inc., Enphase Energy Inc., and Fair Isaac Corp. are the top tech companies this month.
Arrow Electronics' plunging stock has turned the semiconductor distributor into a top value after posting record third-quarter sales results in a depressed electronics market. Solar equipment maker Enphase is posting soaring earnings and revenue as demand for its alternative energy products remains strong. And credit score company Fair Issac, better known as FIC0, is rising after reporting quarterly earnings topped expectations.
These companies are leading their category as tech stocks, represented by the Technology Select Sector SPDR Fund (XLK) have lost more than a fifth of their value in the past year compared with the 15% drop of the Russell 1000.
Here are the top five tech stocks in each category - 15 in all - with the best value, fastest growth, and most momentum. The market performance numbers above and statistics in the tables below are as of Nov. 22, 2022.
Value investing is a factor-based investing strategy that involves picking stocks that you believe are trading for less than what they are intrinsically worth, usually by measuring the ratio of the stock’s price to one or more fundamental business metrics. A widely accepted value metric is the price-to-earnings (P/E) ratio. Value investors believe that if a business is cheap compared with its intrinsic value (as measured by its P/E ratio, in this case), then its stock price may rise faster than that of others as the price comes back in line with the worth of the company. These are the tech stocks with the lowest 12-month trailing P/E ratio.
|Best Value Tech Stocks|
|Price ($)||Market Cap ($B)||12-Month Trailing P/E Ratio|
|Arrow Electronics Inc. (ARW)||109.38||6.7||5.1|
|HP Inc. (HPQ)||29.38||29.6||5.1|
|Hewlett Packard Enterprise Co. (HPE)||15.63||20.1||5.6|
|Avnet Inc. (AVT)||44.85||4.2||5.8|
|Dell Technologies Inc. (DELL)||43.85||32.1||6.3|
- Arrow Electronics Inc.: Arrow provides technology products and services, including electronic components, distribution, and solutions for clients in enterprise computing. Arrow employs nearly 21,000 worldwide and serves more than 220,000 global customers. The company in early November reported an 18% increase in net income year-over-year as revenue rose 9% to $9.3 billion, a third-quarter record. The company recently announced the debut of JetCarrier96, a carrier board system that has applications in autonomous machines, intelligent vision, and diagnostic healthcare imaging.
- HP Inc.: HP sells desktop and notebook computers, workstations, retail point-of-sale systems, displays, printers and hardware, and support and services. HP’s customers include individual consumers, businesses, and governments. The company holds 27,000 patents and operates in 170 countries globally. HP announced on Nov. 22 a dividend of $0.2625 a common share payable on Jan. 4.
- Hewlett Packard Enterprise Co.: Hewlett Packard Enterprise sells a broad range of products and services in areas including cloud services, high-performance computing and AI, software, and storage. The company has 55,000 customers globally and its edge networking connects 10 million devices.
- Avnet Inc.: Avnet provides supply chain and logistics services, distribution, and design support for electronic components. It ships 283 billion units annually and employs 15,300.
- Dell Technologies Inc.: Dell sells computer products and services to consumers and businesses, including hardware, software, peripherals, data center infrastructure, and cloud technology. As of January 2022, Dell employed a roughly 32,000-person sales force and 35,000 service and support professionals. Dell recently reported that net income from continuing operations plunged 93% on falling revenue during the third quarter. Results were impacted by a $1 billion expense related to a legal settlement.
These are the top tech stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in a company’s success. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with a quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.
|Fastest-Growing Tech Stocks|
|Price ($)||Market Cap ($B)||EPS Growth (%)||Revenue Growth (%)|
|Enphase Energy Inc. (ENPH)||320.44||43.6||433.3||80.6|
|NCR Corp. (NCR)||22.99||3.1||666.7||3.7|
|TD Synnex Corp. (SNX)||101.77||9.7||-14.4||194.9|
|Monolithic Power Systems Inc. (MPWR)||374.02||17.6||78.5||53.1|
|Arista Networks Inc. (ANET)||136.04||41.6||60.9||57.2|
- Enphase Energy Inc.: Enphase designs, builds, and sells solar energy equipment and hardware including microinverters, energy generation monitoring equipment and software, and battery storage products. Enphase has installed more than 52 million microinverters on over 2.7 million homes in more than 145 countries. The company's third-quarter net income jumped seven-fold on record quarterly sales as customers in the U.S. and Europe accelerated their move away from fossil fuels.
- NCR Corp.: NCR is a point-of-sale transactions company that provides services for self-directed banking as well as to retail stores and restaurants. The company employs 38,000. NCR's reported a five-fold increase net income from continuing operations attributable to the company on rising revenue in the third quarter, driven by growth in its payments and network business.
- TD Synnex Corp.: TD Synnex distributes a broad range of IT products and services, including PC systems, consumer electronics, storage, networking, and servers. The company employs 22,000. The company on Sept. 27 reported that third-quarter net income increased 57% as revenue nearly tripled, aided by its merger with Tech Data a year earlier.
- Monolithic Power Systems Inc.: Monolithic provides semiconductor-based electronics solutions, including process and system integration services. The company employs more than 2,700. The company in late October reported that net income climbed 81% on surging revenue during the third quarter, aided by growth in all of its end markets.
- Arista Networks Inc.: Arista provides cloud network services to data center, campus and routing customers. It has shipped over 50 million cloud networking ports globally.
Momentum investing is a factor-based investing strategy that involves investing in a stock whose price has risen faster than the market as a whole. Momentum investors believe that stocks that have outperformed the market will often continue to do so because the factors that caused them to outperform will not suddenly disappear. In addition, other investors, seeking to benefit from the stock’s outperformance, will often purchase the stock, further bidding its price higher and pushing the stock up further. These are the tech stocks that had the highest total return over the past 12 months.
|Tech Stocks With the Most Momentum|
|Price ($)||Market Cap ($B)||12-Month Trailing Total Return (%)|
|Fair Isaac Corp. (FICO)||577.90||14.4||63.2|
|First Solar Inc. (FSLR)||167.66||17.9||55.0|
|Aspen Technology Inc. (AZPN)||238.65||15.4||54.1|
|International Business Machines Corp. (IBM)||149.10||134.8||34.5|
|Switch Inc. (SWCH)||34.15||5.4||25.8|
|Russell 1000 Index||N/A||N/A||-14.7|
|Technology Select Sector SPDR Fund (XLK)||N/A||N/A||-20.7|
- Fair Isaac Corp.: Fair Isaac is an analytics software company that sells products used to manage risk, combat fraud, and optimize operations across a variety of industries. FICO serves customers in over 90 countries.
- First Solar Inc.: First Solar is a producer of solar panels and components. By 2025, the company expects to have a global annual manufacturing capacity of more than 20 gigawatts. First Solar announced in mid-November that it will invest $1.1 billion to build its fourth American manufacturing facility, which will be located in Lawrence County, Alabama. First Solar's other American factories are in Ohio.
- Aspen Technology Inc.: Aspen provides process software and services for manufacturing and other capital-intensive industries. It has more than 3,700 employees in over 60 locations around the globe.
- International Business Machines Corp.: IBM is a technology company providing software, systems, cloud, and consulting services. The company operates in over 175 countries.
- Switch Inc.: Switch designs, builds, and operates advanced data centers for more than 950 customers across the technology, digital media, financial, healthcare, and telecommunications sectors. Switch reported this month that its net loss during the third quarter narrowed from the prior-year period as revenue climbed 10%.
The Impact of Inflation on Technology Stocks
Technology stocks historically have underperformed other sectors during periods of rising inflation. Conversely, the group typically outpaces the broader market during times of falling inflation. For example, the technology bull market between 2009 and 2021 coincided with an annualized historically low inflation rate of 1.7% over that period. Moreover, the sector has led broad market declines year-to-date (YTD) in 2022 amid rising inflation, which reached a 40-year high in June of 9.1%.
The question then becomes: Why are technology stocks so sensitive to inflation? It all relates to interest rates. Rising inflation indicates that the Federal Reserve will likely increase its federal funding rate to taper demand. Higher interest rates affect technology companies in two ways. First, consumers and businesses will have less income to buy technology products and services, which has an effect of slowing corporate earnings. Second, technology companies borrow heavily to fund startup costs, patents, and innovation expenses, meaning the cost of servicing that debt increases when interest rates rise.
Indeed, the opposite happens when inflation declines. The Federal Reserve will likely lower interest rates then, which spurs consumer demand and reduces technology companies' borrowing costs.
Advantages of Technology Stocks
Investing in Innovation: Investing in technology stocks allows investors to back revolutionary ideas that have the potential to improve people’s lives. Technology companies of all sizes continually push boundaries to be first to market with game-changing technology, whether it be Apple Inc. (AAPL) with a new health feature for its iWatch or a startup developing a game-changing semiconductor for the automotive industry.
Growth Potential: Technology stocks offer the potential for sizable gains, with investors usually prepared to pay a premium for future growth. For instance, as of late October 2022, the technology sector traded at 18.7 times forward earnings. By comparison, the energy and financial sectors had forward price-to-earnings ratios (Forward P/Es) of 7.43 and 12.45, respectively. Although the biggest gains can be found in small-cap technology stocks, even mega-cap tech titans, such as the original FANG members—Meta Platforms Inc. (META), Amazon.com Inc. (AMZN), Netflix Inc. (NFLX), and Alphabet Inc. (GOOGL)—had an annualized return on Oct. 28, 2022, of 18.97% over the past decade.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
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