Is a drop in these 3 names a tech buying opportunity or a pass?

Chris Lau, Kapitall: Investors looking for a tech buying opportunity should take a second look at these three tech names.

A big sell-off in the stock market makes investors uneasy. When an individual stock drops seven percent, fear might lead to more selling. Not all drops are equal, however. Stocks with lots of froth may not recover, while those on solid ground will bounce back over time.

Coupons.com (COUP) is an example of a stock whose share price might not recover if fear rises. The stock trades at a price-to-sales ratio of 8.92. Its operating and profit margins are both negative, though return-on-equity (ROE) and return-on-investment (ROI) are both positive, at 7.3% and 5.8% respectively. Gross margin is also 69%. Still, the low returns might mean investors will continue to sell Coupons.com. The stock is already down 26% for 2014.

Ciena (CIEN) dropped eight percent after guiding lower during its Investor Day. Operating margin is lower than investors would like. Revenue growth guidance is better: the firm did not raise operating expenditures high enough to hurt consensus revenue growth of 10.4%. Ciena expects these expenses will be $820 million, up slightly from $810 million in 2013.

Despite having a price-of-profitability (POP) of 42, the valuation is justified because quarterly sales improved throughout last year.

Ciena will appeal to patient investors. Its growth in 100G markets will take time. Ciena competes with Ericsson (ERIC) in this market.

In the semiconductor market, NXP Semiconductors NV (NXPI) dropped 7.4% on April 4. Its valuation had risen steadily since late 2012.

NXP makes NFC controller and secure elements for smartphones. Its chip will be used in Samsung’s S5 device, which is being released this month.

Bullishness is high for NXP because investors speculate Apple (AAPL) will make an order. Even without Apple’s business, NXP’s ID chip business is set to grow. In Q4, this area accounted for over one-quarter of revenue. ID chip sales were $329 million in Q4.

Conclusion

NXP and Ciena are not speculations, and as such, the drop in their shares could be temporary. The drop could be buying opportunities for investors who missed out the last time its share prices dropped.

Do you think the pullback in tech presents a buying opportunity? Use the list below to start your own research.   

1. CIENA Corp. ( CIEN): Provides communications networking equipment, software, and services that support the transport, switching, aggregation, and management of voice, video, and data traffic. Market cap at $2.61B, most recent closing price at $25.18.

 

 

2. NXP Semiconductors NV ( NXPI): Provides mixed signal solutions and semiconductor components primarily in Japan, Europe, South Korea, Rest of Asia Pacific, and the Americas. Market cap at $13.71B, most recent closing price at $55.55.

 

 

3. Apple Inc. ( AAPL): Designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. Market cap at $472.72B, most recent closing price at $527.55.

(List compiled by Chris Lau, a Kapitall contributor. All data sourced from Zacks Investment Research.)

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