This is the Value Investor podcast with Tracy Reinek, All Things Value All the Time. Welcome back value investors. So we all know about the sell-off here this year in 2022, but what sector has seen some of the biggest declines of the year? It's one we don't talk about that much on the Value Investor podcast, but I always want to, and that would be technology.
Could there be some juicy value stocks there now that we've seen the big sell-off? The danger with simply looking for cheap is that we'll get stocks where the earnings are being slashed. And that's why we haven't been featuring much tech on the Value Investor podcast, even with the pool back, because those earnings aren't looking all that great on many technology companies right now. But what about those where they aren't?
Where maybe things are looking okay on the earnings front? Are there any? I didn't know because we haven't really looked for them here on the Value Investor. So I decided to do it.
I decided to look for tech stocks with PE's under 15. Yes, I decided to use the PE ratio as a sign of cheapness. And although I did run a screen just to check with the price-to-sales ratio as well, but it gave me pretty low numbers there. So I got rid of the price-to-sales.
We're just going to stick with the PE under 15. And I also used an average volume of at least 100,000 shares traded every day because I was getting somewhere. It was just so thinly traded that wasn't helpful. And I didn't necessarily want to restrict the market cap.
So I went with volume instead, and then I used the Zax Rank. So this screen was pretty key to use the Zax Rank to find companies where the analysts at least are raising those earnings estimates. Now, as I'm recording this on November 23rd, we're coming out of the earnings season. We're basically done with the earnings season.
So a lot of these companies just reported and this is like fresh estimate revisions by the analysts. So we're getting a pretty good look at what the analysts think is going to happen for this year, either 2022 or if they're on the fiscal year, fiscal 2022 or 2023 for some of them now. And even a look into next year. So I went with companies that had a Zax Rank of number ones, which are the strong buys.
And I remember there's just a little over 200 stocks that have that rank and then the number two, which is the buys because those are good too. So why not look at both? And there's a little over almost 950 stocks right now that have both of those Zax ranks. And then I combined it with that PE under 15 and a volume over 100,000.
So I didn't get anything that was just, you know, 3000 or 10,000 shares traded every day. And I ran this and I got 16 stocks. So that's not too bad. And taking a look at the list, most of them are companies that I wasn't that familiar with and you probably aren't either.
And that makes it more interesting, right? Because we haven't been featuring much tech on the Valley Investor podcast. And so we've kind of been stuck with the same stocks, the banks, some energy, the home builders are out there cheap, you know, some of these types of stocks over and over again. But now we're actually going to look at some tech.
So what did I pick out of this? I kind of just looked at a couple of the tickers of some that I was at least familiar with. And then I looked at some where I was not a couple. I did not really like what was happening with the earnings.
So I just took a pass on those and I did just pick out five of the names. And sometimes I didn't know what I was going to find when I started diving in because they're small cap companies that I am not familiar with. So let's just get started. The first stock is called Flex.
It's ticker FLEX. And originally I thought, well, I've never heard of this one. What a fun ticker too. But I have heard of this one.
They just basically shorten their name to something more hip and current. So this is FlexTronics. They've been around for more than 50 years. And they describe themselves as a diversified manufacturing partner that helps market-leaving brands design, build, and deliver innovative products that improve the world.
Wow, that's pretty dramatic. They're in San Jose. Like I said, I am familiar with FlexTronic, but I haven't looked at this stock in quite some time. So they are number two, which is the buy.
They have a PE right now, just 9.1. So that's really cheap. They actually have a peg ratio to a .7. And remember a peg ratio under one indicates that there's both growth and value.
Their market cap is 9.4 billion. So pretty big size for this tech company, no dividend with them. So I took a look at what was going on with the earnings and they just reported their second fiscal quarter. So this is fiscal 2023.
Earnings expected to be up for this fiscal year 16.3% with four estimates higher in the last 30 days and none are lower. So you can see why it's got the good rank, right? They are expecting to make $2.28 versus $1.96 last year. So that's the earnings growth right there.
And then fiscal 2024 up another 5.9% with four also higher there to $2.42. So $2.28 expected this fiscal year and $2.42 next fiscal year. What are the shares doing? Year to date they are actually up.
So I guess it pays to have rising earnings, right? Year to date up 14.4%. But over the last five years, up just 9.7%. And that's under performing the S&P, which is up 53.8 and the NASDAQ, which is up I think I had 63.8 in there for the NASDAQ.
So significant underperforming because this is considered to be kind of on the boring side of tech, right? Flex tronics, which is why they changed their name probably to Flex because they wanted to be again more current. But it's cheap and it's got the rising earnings estimates for this year and next year with the earnings growth. So you're not seeing that very often and that's why it made the list.
And this was what I was hoping to find when I ran this screen. So that's Flex FLEX. Then I looked at a company I never heard of before called ACM Research. Ticker is A as an atom, C as in cat, M as in Mary, R as in Robert, ACMR.
Other descriptions said they were founded in 1998 in Silicon Valley and they develop web processing technology and products for the semiconductor industry. That includes wafer cleaning and web processing equipment for the semi-manufacturing side of it. They do have a facility in Shanghai. So I took a look at their recent earnings.
It was third quarter on November 4th is when they just reported. They did see record revenue, but then they said as operations returned to normal following the COVID-related restrictions in the first half. So Shanghai sounds like was either shut down or had other issues with those COVID restrictions over in China. And that's something to keep in mind for any company that has operations in China right now.
They did lower the upper end of their 2022 revenue outlook to reflect the impact they said of the new US trade policies and supply chain constraints. So that's another thing if you're looking at companies that are in China, are these trade policy changes and what kind of impact that might have. And then they are saying that there's still supply chain constraints. So there's a lot going on.
How could this make the list, right? Well, it's a section number two still. It's a set number two by it has a P e of 11.8. Now, it has a market cap of just 529 million.
That's why I've never heard of it. It's on the small cap side and earnings expected to be up 13.9% in 2022, but down 23% for next year. Now, there's only one estimate on this company. So because it's a small cap, you often get that you often get one or two estimates on Zexx.com because it's more lightly covered basically.
So what does it look like for 2022 expected to make 74 cents versus 65 last year? But then the one estimate was lowered in the last 30 days for 2023 expected to make 57 cents and that was down from 90 cents previously. So maybe all these issues have caught up to it, but it'll happen for next year. Now they did lower their revenue guidance range for the year to 365 to 385, 385 million, but they kept the lower end of the range.
So that's down from their prior guidance of 365 to 405. So just down a little bit, but year to date, shares are down 69% now. So you can see a lot of the semiconductor stocks, it's getting pretty hammered there. It is a stock under $10 now at around $8.75.
Over the last five years, it did spike dramatically during the pandemic and was up something like 1,700% in that time period and is still over the five year time period, even with the big decline of 288% over that time period and the NASDAQ up 63. So still outperforming, but semiconductor industry is challenged and then you do have these issues in Shanghai with COVID restrictions and US trade policy restrictions. So this stock just kind of goes to show you why you need to dig deeper, right? You can't just run a screen and go, hey, everything looks good.
It's got the rank, it's got this and the that and it's cheap. No, you have to go in there and see what is going on and what else behind the scenes is actually happening in the business. So keep that in mind with AMC research ticker ACMR, but it does have earnings and it is pretty cheap, but could it go cheaper? Possibly.
So I'm keeping an online watch list. Okay, the third stock we have heard of is called Dropbox ticker D as in David B as in boy X DB X and they describe themselves as a leading global collaboration platform. They have 700 million registered users and the paying users were at 17.55 million compared to 16.49 million for the same period last year in the third quarter. Third quarter revenue was also up 7.4% to 591 million.
Free cash flow, it's pretty strong here and I was surprised by this, but I guess I shouldn't be because it's a high margin business. Free cash flow was 245.2 million in the quarter up from 221.5 a year ago. Cash on hand is also pretty impressive, 1.45 billion at the end of the quarter. So what does the fundamentals look like?
So they are as X number two, which is the buy. They have a market cap of 8.2 billion and a forward P of 14.2. So not quite as cheap as some of the other stocks. And maybe it has to do with the shares because here to date, they're only down 7.9%.
So this isn't one that has had the huge collapse. And that's beating the NASDAQ, which is down 28%. Over the last five years, down 18.3% versus the NASDAQ up 105. Oh yes, I was like, how could that be?
It's up only 63. But they didn't go IPO until March of 2018. So there's some time period missing in there a few months missing. This goal 2022 earnings expected to be up 1.95%.
So about 2% to a dollar 57 versus a dollar 54 last year. So that might be considered like a triumph under these economic conditions, right? It's basically the same as last year. But five estimates were higher in the last 30 days and none lower for this fiscal 2022, but fiscal 2023 too higher and too are lower.
And they're expected to see earnings growth of about 10% to a dollar 73. So there's no dividend with this company. I was thinking, wow, look at that free cash flow, cash on hand. All of that is super tremendous.
But no dividend, but they do have a big share by that program in February 2022. They now have a 1.2 billion repurchase program. So that's where the cash flow is going is just to purchase the shares. Maybe that's why they're only down 7.9% on the year and not worse like some other tech companies.
So that's Dropbox ticker DBX. And then we're going to switch over to advertising, believe it or not. One of them made this list. It's called Perion Network.
ticker Perry, Pee isn't Paul, he isn't Edward, R is in Robert, I, P-E-R-I. That's easy to remember. Now this is a X number one rank strong by market cap is on the small side, just 1.2 billion. It's headquartered in Tel Aviv and New York City.
Pee is 11.9. So pretty cheap here. This is a global advertising company. And I know what you're thinking, like what?
And I saw it on here and I saw what they did. I'm like, why? How could this be a number one? What is happening?
Advertising is supposed to be terrible, especially digital advertising. It always declines in recessions. It got hammered at the start of the pandemic. The advertisers always pull back.
Aren't they doing so right now? I don't know. And it does say their solutions are delivered across three channels of digital advertising. Search, social media and display, video and CTV advertising.
Well, that sounds all like the terrible areas, right? So I took a look at their earnings report. This is what you must do. And this was for a third quarter.
And it was on November 9th. So that was just a little over about two weeks ago. So this is recent. And they did say advertisers are shifting their direct response budgets from social advertising, which they said was mainly Facebook, to search advertising.
But they still saw their eighth consecutive quarter of top and bottom line double digit year over year growth. So that doesn't sound too bad. And they raised their full year revenue guidance. But that was just third quarter.
So that's only the next quarter, right? But this all sounds good, right? They also had cash at the end of the quarter of 390 million. So there's none, some nice cash too.
So in the quarter, total revenue was up 31% to 158.6 million from 121 million. And again, they raised their full year revenue guidance. So this was the raise to 620 to 640 million. Their prior guidance was looking for 630 to 635.
So they raised the bottom 10 million and they raised the top 5 million. But still with these kind of economic conditions and on the advertising side, no less to be raising this year's guidance is pretty impressive. Now, again, I know what you're thinking, well, who knows what's going to happen next year, but the advertising has already started to slow, right? So yet they are still pretty bullish here.
So what do those earnings look like? This year, 2022 expected to be up 115% to 220 from 102 last year. So that's the impressive part. And then 2023 analysts are cautious, but still looking for 5.4% growth to $2.32.
So three estimates are higher and none are lower for both of these years over the last 30 days. So we have more than just one analyst here. We have a couple. And they are not yet bearish on 2023.
But still early, we won't really know until they report fourth quarter earnings next year. And then they give more of an outlook and we're already in 2023 at that point. So keep that in mind, things can change quickly. Year to date, these shares are up 9.7%.
No, I'm not surprised. Why wouldn't they be? Over the last two years, they're up 248%. That's off the pandemic, right?
The pandemic really crushed these kinds of companies. And then everybody's like, no, we're all online and there's tons of advertising. So they all surged, but it's kind of been treading water over the last year. Take like I said, year to date, it is up 9.7%.
But it hasn't seen the huge gains as we're already baked in a couple of years ago. And five year return is 737%. So it's really seen that big five year return on the big growth. So again, only trading at 11.9 times.
But the real question is, can it continue to do this in the face of what certainly will be continued slowing in online advertising? I don't know. But right now it's looking pretty good, right? That's Perien Network, ticker P-E-R-I.
And then we're going to wrap it up with another small cap company called MidTelk Systems. Let me look that one up. I want to make sure I'm getting it right. No, MidTek.
There's no L in there. Why did I put an L in there? MidTek Systems. That makes sense.
It sounds more techy. ticker M as a Mary. I, Tia Zentam, K, M-I-T-K. They're in San Diego.
They are a small cap, like I mentioned, the market cap of just 180 million. So pretty small here. And what do they do? They are a global leader in mobile capture and digital identity verification solutions.
Built on the latest advancements in AI and machine learning. So they said they allow an enterprise to verify a user's identity during a digital transaction. And this is very important, especially for those in financial institutions and payment companies. They did just launch in the third quarter a new system, an M-I-V-I-P.
It's called MidTek Verified Identity Platform in the Quarter. So we'll have to wait and see how that turns out. It is a SAC number two by PE is 11.5. So pretty cheap here too.
What did the earnings look like? In fiscal 2022, expected to be up 17.1% to 89 cents from 76 cents last year. And then a little bit more gain in fiscal 2023, up 3.1% to 92 cents. So from 89 cents to 92 cents.
So analysts being a little conservative there too. This was just fiscal third quarter that they reported. It ended on June 30th. And we're kind of waiting for the next earnings report here.
It should be anytime now. But as I was looking around and trying to find out if it reported earnings on its website, I noticed this other press release that was called Notice of De-Listing from the NASDAQ. I took a look at that one, right? It was from August.
And they did get a notice for Nat Filing their quarterly report on time. They had until October to file it. Apparently they did because they're still listed. So you see some of these little things with the smaller kept companies, but this is why you go in and look around and see what the company is doing.
You're not just relying on the screen, right? Year to date these shows are down 39% over the last five years. They're up just 12% versus the QQQ's up about 63% in that time. And then the S&P 500 up about 53%.
So it is getting hammered pretty good for the year. Like a lot of tech companies are. It is off those September lows, however. So it has bounced a little bit off those lows.
But this is when to watch and to see if they actually report earnings again, these things make me nervous, especially with the small caps. But you never know when you screen and that's why you do have to go in and do your research and look around and listen in on the conference calls and whatnot. But I didn't want to not include it here because I did think it was interesting that I found this Notice of De-Listing from the summer. And that's part of the process of using these screens and finding stocks, right?
And researching them is that you don't know for sure what you're going to find, especially on the small caps side because they're just not covered and they're not talked about much on the news or even on Yahoo Finance. So remember, again, the reminder is to do your research, especially on these small caps. Listen in on those conference calls, as I mentioned, you can find opportunity in these small caps, but they are more risky because there's just less information out there about them. There's less of a track record.
The management isn't as well known and there's fewer analysts on it. So you can use the sex rank to find hidden gems in there, which is what this screen actually showed. We had some larger caps, but we also had quite a few of these smaller cap companies where the analysts are raising those estimates and it does have a good rank for right now coming off of this earnings season. And some of the big, big caps, the mega caps evidently do not end or they're not cheap enough to qualify for the screen.
So the earnings don't look as good with some of them and they don't have the good sex rank. A lot of the fang men's are number fours or even number fives right now, which we've occasionally seen over the years, somebody dropping down to a five when there's issues going on. But this year, we've seen a lot of estimate cuts in the tech sector and growth stocks in general. So we're seeing a lot of bad sex rank recommendations on those, but we were still able to find 16 stacks here for this week's episode all in the technology sector.
I used Zex computer and technology sector on the screen. So it gives me only that and certainly we got quite an interesting mix of various businesses here, right? Within technology. It's not always what you think, right?
When you are in here looking at these smaller cap companies, it's not all just about meta or alphabet. So keep that in mind. Value is where nobody's hanging out, right? And these stocks are out of favor and some of them certainly are.
So do your due diligence and keep an open mind. Okay, let me recap the stocks again. So we had flex, which is the old flex tronic ticker f L E X. We had ACM research, which was the semiconductor that involved in the manufacturing side ACM are we had Dropbox.
We all know that one ticker DB X. We had the digital advertising one that shocked me. Perion network ticker P R I and then we had mid tech systems ticker MIT K on the digital identity verification side, which is also an interesting area. So you want to be sure to subscribe so you don't miss a single episode.
I'm going to be covering more about what has gone on in 2022 in the next few episodes because it is the end of the year. So we will be looking forward as well. And starting in January, 2023, we always have the episode of, you know, what are the cheapest stocks to start the year. So that's always an interesting one.
And I always try to go back and look at that episode at the end of the year to see how it all turned out. So I'm gonna have to go find that episode for some of these December episodes so we can see what happened with those cheap stocks at the beginning of the year because we have had the sell off this year and did some of them get even cheaper. What did it lead us to over the course of 2022? So you want to be sure to subscribe so you miss a single episode.
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