While the tech industry had a bumpy ride earlier this year, with investors rotating away from expensive tech stocks to quality cyclical stocks, continued digital transformation, and the central bank’s decision to not raise interest rates too quickly on inflation fears alone should enable the prices of tech stocks to climb to fresh highs this year.
As the reliance by individuals and businesses on technology continues to grow, tech companies are broadening their bases and increasing their offerings to exploit the opportunity. With expenditure on computers, video games, networking, cloud computing services, and digital advertising increasing dramatically, the tech industry is well positioned to keep growing.
Considering this solid backdrop, we think fundamentally sound technology stocks Nokia Corporation (NOK) and Canon Inc. (CAJ) are well positioned to deliver significant returns going forward.
Nokia Corporation (NOK)
Finland’s NOK specializes in network and Internet protocol (IP) infrastructure, software, and associated services. Nokia Networks and Nokia Technologies are two of the company's business divisions. Ultra-Broadband Networks, IP Networks, and Applications & Analytics are among the various segments in which the company operates.
This month, NOK launched its newest AirScale 5G solutions in the global market. The solutions include baseband, remote radio heads, and massive MIMO active antennas with digital beamforming. The cutting-edge solutions are based on Nokia's ReefShark System-on-Chip (SoC) chipsets, which provide the maximum capacity and network performance while allowing for quick deployment and operation. Through this, the company is expected to better serve the changing demands of customers with faster speed, more capacity, and seamless connectivity.
Also, this month, in a coordinated attempt to fight unfavorable climate changes, NOK undertook a study with Japan-based telecommunications provider KDDI to assess the feasibility of sustainable networking solutions. The tests are expected to support carriers in using environmentally friendly networking technologies on a broad scale to cut costs and contribute to their CSR (Corporate Social Responsibility) activities.
During the first quarter, ended March 31, 2021, NOK's net sales increased 3.32% year-over-year to €5.08 billion ($6.06 billion). Its operating profit rose 467.1% from a €431 million ($514.39 million) year ago value. Its net income increased 128.7% year-over-year to €263 million ($313.89 million), while its EPS grew 150% from the prior-year quarter to €0.05 ($0.06).
A $0.31 consensus EPS estimate for next year represents a 6.9% improvement year-over-year. The $25.81 billion consensus revenue estimate for the current year represents a 3.5% increase from the same period last year. The stock has gained 22.5% over the past year and 39.4% year-to-date.
NOK's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NOK also has an A grade for Growth and Sentiment, and a B for Value. Within the B-rated Technology-Communication/Networking industry, it is ranked #11 of 55 stocks.
To see additional POWR Ratings for Momentum, Quality, and Stability for NOK, click here.
Canon Inc. (CAJ)
CAJ specializes in the development, manufacturing, and sale of office equipment, imaging systems, medical systems, industrial equipment, and related services. The company’s four business segments are: Office, Imaging System, Medical System, and Industry and Others. It offers its products to dealers and retail outlets as well as direct to end-users worldwide through subsidiaries or independent distributors. CAJ is based in Tokyo, Japan.
This month, CAJ introduced its new imageRUNNER ADVANCE DX C568iF. The new versions, which are available in desktop and freestanding configurations, are designed to provide high efficiency, productive scanning, and assist customers to create clear text and consistent pictures at rapid print rates.
Also, this month, the company introduced its Sensing Unit, Inspection Unit, and a new optional Cooling Unit for its imagePRESS C10010VP Series of digital color presses. This development will enable users to print in a more sophisticated and consistent manner, thereby increasing efficiency and quality in production environments.
CAJ's net sales increased 7.7% year-over-year to ¥842.65 billion ($7.65 billion) in the first quarter ended March 31, 2021. Its net operating income surged 114.6% year-over-year to ¥70.56 billion ($640.70 million). The company's net income has increased 102.9% from its year-ago value to ¥44.45 billion ($403.63 million) over this period. Its EPS has increased 105.5% year-over-year to ¥42.50 ($0.38).
The company's EPS is expected to grow 95.9% year-over-year to $1.45 in the current year. Analysts expect CAJ's revenue to increase 8.7% to $32.18 billion in 2021. CAJ's stock has gained 11.1% over the past year and 44.7% over the past nine months.
It is no surprise that CAJ has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has a B Grade for Growth, Value, and Stability. In the B-rated Technology-Hardware industry, it is ranked #2 of 45 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see the CAJ ratings for Momentum, Quality, and Sentiment here.
NOK shares were trading at $5.42 per share on Monday afternoon, down $0.03 (-0.55%). Year-to-date, NOK has gained 38.62%, versus a 14.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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