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All Contents © 2017The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| May 2017
Technology stocks can be notoriously expensive. A single share of Amazon.com (AMZN) is approaching $1,000. Ditto for Google's stock (GOOGL). Apple's (AAPL) share price would be above $1,000 had the company not split its stock 7-for-1 in 2014.
So how do you add technology stocks to your portfolio if you only have a small amount to invest? One cost-effective way is to focus on promising tech stocks priced under $20 a share. We found four names worthy of your consideration.
But before you place a buy order, don't neglect to weigh the impact of trading commissions. Let's say you want to invest $100 in each of the four stocks we recommend. Even at just $4.95 per online trade, the going rate at brokerages such as Fidelity and Schwab, your investment is already down 5%. For small trades, consider opening a free Robinhood account instead. You can use the brokerage's smartphone app to make no-commission stock trades. An upgrade to the premium service, which gives investors access to after-hours trading and margin accounts, starts at $10 a month.
Data is as of May 2, 2017, unless otherwise indicated. Click on ticker-symbol links for current share prices and more.
(Stocks are listed in alphabetical order. Analyst ratings are per Zacks and Thomson Reuters.)
Share price: $10.32
52-week range: $3.45 - $15.55
Shares in semiconductor manufacturer Advanced Micro Devices tumbled on May 2, a day after earnings for the first quarter failed to exceed analysts' expectations. That disappointed momentum traders who had bid up AMD nearly fourfold over the past year. But for long-term investors willing to take a risk, this setback affords a chance to bet on AMD's prospects at a considerably lower price level.
"Overall, though the stock will likely be weak in overreaction to the results, we believe a host of positive catalysts are still to come during the remainder of 2017 and our buy thesis remains very much intact,” said analysts at Canaccord Genuity.
AMD is concentrating on the market for graphics processing units (GPUs) -- the brains that allow computers to render images -- because of the growth prospects. GPUs are in heavy demand by rapidly expanding industries such as data centers, gaming and virtual reality. At the same time, AMD continues to compete with Intel (INTC) in the traditional business of making central processing units for computers
The company is a leader in the gaming market, being the sole supplier of certain custom chips for both Microsoft's Xbox One and Sony's PlayStation 4. As such, AMD is set to benefit from Microsoft's launch of its new Scorpio gaming console later this year. Don't be surprised is a successful debut of the console system gives AMD stock a boost.
Analysts at Stifel, who rate shares at hold, say the company is on track for market-share gains and forecast a return to profitability on an adjusted basis this year. (AMD lost 4 cents a share on an adjusted basis in the first quarter.) More broadly, analysts who track AMD are split between high optimism and caution. Of the 18 analysts surveyed by Zacks, nine call it a strong buy, eight say it's a hold and one has it at strong sell.
Share price: $18.08
52-week range: $12.13 - $18.49
CalAmp is a small technology company with big aspirations. It specializes in wireless communications products that allows machines to talk to each other, as well as collect, monitor and report data to their human operators. It acquired vehicle tracking company LoJack in 2016. Since the Internet of Things -- the movement to connect everyday devices from appliances to automobiles -- is growing at a brisk pace, CalAmp looks to be in the right place at the right time.
Equity research firm William Blair expects to see more cost savings from the LoJack deal. And further investments in the business should shift LoJack's "trajectory back to growth." Turning LoJack around won't be easy, analysts say, but William Blair applauds CalAmp's progress thus far, and believes the company can wring profits out of the technology.
Shares are up 25% year-to-date and could have more upside ahead, analysts say. Of the eight analysts surveyed by Zacks who cover the stock, four say it's a strong buy and four say it's a hold. Their average price target of $20 suggests the stock can rise 11% in a year's time.
Share price: $18.90
52-week range: $11.31 - $19.03
HP is another technology company benefiting from a better market for PCs. The world's second-largest maker or PCs enjoyed year-over-year shipment growth of nearly 7% in the final quarter of 2016, IDC says. It was the third consecutive quarter of increased shipments, which topped 15 million units for the first time since the end of 2014. IDC further notes that HP added to its share of the U.S. market. It now accounts for 31% of domestic PC sales.
HP is in about as mature an industry as you can get, but that doesn't mean value can't be found in its stock. Indeed, the market appears to have figured this out. Shares in HP are up 27% year-to-date versus a 7% gain for the S&P 500. And yet they remain reasonably priced. The stock trades at 12 times future earnings, according to a survey by Zacks. That's cheaper than the S&P 500, which goes for 17.6 times expected earnings for the next 12 months, according to FactSet.
HP stock has appreciated so much this year that some analysts are becoming more cautious. According to Zacks, five say it's a strong buy and one rates it at buy, but five call it a hold. Shares are currently trading near the top of the 52-week price range, but keep in mind that at a yield of 2.7% HP does offer a decent dividend based on the last four quarters of payments.
Share price: $16.25
52-week range: $11.68 - $17.60
Analysts are hardly united in their view on Vishay Intertechnology, but the stock is cheap enough to merit a closer look from bargain hunters. Like AMD, Vishay manufactures semiconductors and is at the mercy of the cyclical market for computer chips. Fortunately, the market appears to be in an upswing, Stifel notes.
In light of solid demand, especially in Asia, Vishay's profit margins should rise off depressed levels as the market for semiconductors improves. And market researcher International Data Corporation notes that global shipments of personal computers are stabilizing after five years of declines.
Despite rising on strong quarterly earnings, it's not a sure thing that this brighter outlook is fully reflected in the share price yet. Vishay’s stock trades at 15 times expected earnings for next year, according to Thomson Reuters, or less than half the forward price-earnings ratio of AMD. That's an attractive valuation for a company forecast to increase its per-share earnings by 22% this year. It's also attractive given that analysts think earnings can deliver annualized gains of 17% over the next half-decade.
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