Why These 2 Undervalued Technology Stocks Are Set to Bounce Back

Be careful when buying stocks that are trading near 52-week lows.

There is often a good reason behind a stock's decline, such as disruptions in its industry or decreasing market share. But sometimes the culprit is shortsighted fear from an earnings miss that causes a stock to become oversold.

Cray Research  (CRAY) and Inteliquent (IQNT) are two technology companies whose share prices have been unfairly punished following the release of second-quarter earnings results. 

Cray Research has been making supercomputers since the 1970s, and founder Seymour Cray was a tech star when Steve Jobs was still tinkering in his garage. 

With the mountains of unstructured data that aren't easily organized, supercomputers are still a big deal, and Cray Research is having a resurgence. That is because despite improvements in computing and giant leaps in data storage, standard computers can't process the volume of data generated for academic, commercial and government purposes fast enough. 

Shares of Cray Research fell 30% in the first week of August, dropping to $21.80 from $31.

On Aug. 2, the company reported a wider-than-expected second-quarter loss of 29 cents a share, compared with analyst expectations of 26 cents a share. Revenue of $100 million for the quarter also missed analyst expectations of $101 million. 

Chief Executive Peter Ungaro said that Cray Research's management was forced to lower its outlook due to delays from its suppliers and a fire at a production facility.

Delays integrating new chips from Intel and Nvidia have hurt the company's ability to take new orders. Also, the fire at one of Cray Research's facilities is expected to lower full-year 2016 revenue estimates by more than $100 million.

The fire was an isolated event, and once Cray Research integrates the new chips, its stock should appreciate.

Meanwhile, Inteliquent delivered solid profits over the past couple years, but the company's share price tumbled when it reported second-quarter earnings results that fell short of analysts' expectations.

Analysts expected earnings to come in at 27 cents a share, but they missed by a penny. Shares were down nearly 26% over the summer to $16 from $21.

The company operates in the complicated web of telecommunication services. Although something as ubiquitous as a voice call that is placed and received may seem simple, the route that call takes is anything but.

Inteliquent's clean balance sheet lets it weather the storm of irrational pricing that swept through the wholesale telecom market this decade. Pricing has since settled down after several aggressive players exited the market in 2011.

Although the overall market for voice traffic is flat to slightly declining, Inteliquent managed to gain share as one of the last players standing.

Inteliquent delivered steadily increasing revenue for each of the past five quarters. Although the company has been diligent about returning excess cash flow to shareholders via dividends and share buybacks, growth has been dull.

All that changed with the August 2015 announcement of the T-Mobile contract.

At that time, the company said that the deal would add $20 million in revenue to its original $225 million projection for last year. Actual revenue turned out to be $248.6 million.

Analysts expect full-year 2016 revenue to be $362.75 million. This would represent 46% revenue growth, a game changer for the company and its stock.

Inteliquent is still under-priced, trading at 14.5 times 2017 estimates of $1.38 a share, which assumes just 8% earnings growth. Assuming that earnings grow 20% next year, the stock could move to the low $30s.

Jump on board as this steady performer launches into a growth trajectory.

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The author is an independent contributor to TheStreet.com. At the time of publication, he owned none of the stocks mentioned.

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