Three Affordable Shares Prepared for a Stock Market Rally
With the S&P 500 and Nasdaq Composite frequently reaching new record highs in 2024, it has become challenging to discover compelling tech stocks at reasonable valuations. One of the most popular names, Nvidia, is currently trading at 37 times its forward earnings, while tech titan Apple boasts a forward multiple of 31.
However, if we delve deeper, we can find some tech stocks that still appear like undervalued gems. Here are three of those undervalued stocks: Micron Technology (-4.59%), Dell Technologies (-5.67%), and Cisco Systems (-0.39%). Let's explore why each of these stocks is expected to climb higher.
1. Micron Technology
Micron, a well-known manufacturer of DRAM and NAND memory chips, may not lead in either of these markets, but it consistently produces chips with a higher density than its larger competitors. The memory chip market is known for its cyclical nature, and its recent downturn was seen in 2023 when the PC market entered a cooling period, the 5G upgrade cycle in smartphones slowed, and many data center companies shifted their focus toward ** AI-oriented** GPUs instead of new memory chips. In Micron's fiscal 2023, which ended in August 2023, its revenue plummeted by 49%, and it posted a significant net loss.
However, a new growth cycle began over the past year as the PC and smartphone markets normalized. Data center operators also started considering options beyond GPUs and increased their purchases of SSDs and HBM chips to support the latest AI applications. In fiscal 2024, Micron's revenue skyrocketed by 62% and it returned to profitability. For fiscal 2025, analysts predict Micron's revenue and adjusted EPS will surge 52% and 587%, respectively, as the growth cycle gains momentum.
Given these projections, Micron's stock appears extraordinarily cheap at 12 times forward earnings. With its growth eventually set to cool down again, this may be an excellent opportunity to establish a new position.
2. Dell Technologies
Dell, which rejoined the public markets six years ago, offers a diverse range of products, including PCs, PC peripherals, servers, and data storage solutions. Dell's PC business experienced a decline as fewer individuals purchased new devices for remote work, and the growth of its data storage business in the enterprise market slowed down due to various macroeconomic factors. As a result, Dell's revenue and adjusted EPS decreased by 14% and 6%, respectively, in its fiscal 2024 (which ended in February).
However, for fiscal 2025, analysts anticipate its revenue and adjusted EPS to both increase by approximately 10% as the PC market stabilizes, data centers upgrade their storage devices, and Dell ramps up its production of dedicated AI servers. In its latest reported quarter, Dell generated 12% of its revenue from dedicated AI servers, and it expects this segment to drive its near-term growth. Super Micro Computer's recent struggles may also result in even more AI server orders directed towards Dell.
Dell may not be an exciting AI stock, but it is an appealing bargain at 14 times forward earnings. Its low valuation could set the stage for a significant price surge as its growth resurfaces. Additionally, Dell offers a dividend with a respectable 1.3% yield at its current share price.
3. Cisco Systems
Cisco is one of the world's leading networking hardware and software companies. Its hardware business faced supply chain constraints in its fiscal 2022 (which ended in July 2022), but most of these challenges subsided in fiscal 2023. During this period, Cisco's revenue and adjusted earnings grew by 11% and 16%, respectively.
However, in fiscal 2024, Cisco's revenue and adjusted EPS fell by 6% and 4%, respectively. Many of its large enterprise, service provider, and cloud computing customers – who had increased their hardware purchases significantly after Cisco resolved its supply chain issues – ended up with excess inventory. This surplus, coupled with macroeconomic headwinds, resulted in a significant decrease in their orders to Cisco.
Nonetheless, for fiscal 2025, analysts predict Cisco's revenue to expand by 4% while its adjusted EPS drops slightly by 2%. By fiscal 2025, its business should gradually recover as its inventory issues fade, and the growth in the AI market propels data center operators to further upgrade their infrastructure.
Just like Dell, Cisco is not an electrifying growth stock. However, it looks inexpensive at 16 times forward earnings, while its dividend, which yields an appealing 2.8% at its current price, is also payable. Furthermore, its top line is gradually recovering again, making it an excellent choice for bargain-seeking investors who also want some exposure to the AI market.
In the context of potential investment opportunities, some analysts believe that Micron Technology's stock, currently trading at 12 times forward earnings, could be an excellent opportunity due to its projected revenue and EPS growth for fiscal 2025. Similarly, Dell Technologies, trading at 14 times forward earnings, may see a significant price surge as its growth in the PC market, data center upgrades, and increased AI server production drive revenue and earnings for fiscal 2025. In the realm of finance and investing, these undervalued stocks could offer attractive prospects for investors seeking returns.
