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Meta, Take-Two Among Top Beaten-Down Tech Stocks: Bank of America

by WOOWinvest
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Meta, Take-Two Among Top Beaten-Down Tech Stocks: Bank of America

Technology stocks haven’t had a good year this year, with the S&P 500 Information Technology Index down 21%, while the S&P 500 as a whole is down 17%.

“But some battered tech stocks offer buying opportunities at these levels after a big underperformance,” Bank of America strategists wrote in comments.

The ratio of free cash flow to enterprise value has become a reliable indicator of tech stocks’ performance, strategists said.

Therefore, they put together a list of stocks that have recently fallen at least 20% from their 52-week highs and have an FCF-EV ratio of at least 3% (the recent level of the 10-year Treasury yield).

The roster includes technology and communications services stocks and excludes telecommunications and media.

Here is the list, in order of FCF-EV ratio.

1. Two people interact (TTWO) – Get the Take-Two Interactive Software Inc. report, a video game publisher. FCF-EV ratio: 5.4%.

2. Fidelity National Information Service (FIS) – Get Fidelity National Information Services Inc. Reports, a fintech company. FCF-EV ratio: 5%.

3. Meta Platform (META) – Get Meta Platforms Inc. Reports, the social media giant. FCF-EV ratio: 5%.

4. Zebra Technology (ZBRA) – Get Zebra Technologies Corporation Report, a data technology company. FCF-EV ratio: 4.7%.

5. Global Payments (GPN) – Get Global Payments Inc. Report, a payment services company. FCF-EV ratio: 4.3%.

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6. PayPal (PYPL) – Get PayPal Holdings Inc. report, a financial services company. FCF-EV ratio: 3.8%.

7. EPAM system (EPAM) – Get EPAM Systems Inc. Reports, a digital solutions company. FCF-EV ratio: 3.3%.

8. Advanced Micro Devices (AMD) – Get Advanced Micro Devices Inc. Report, a semiconductor manufacturer. FCF-EV ratio: 3.3%.

The B of A rates all stocks a buy, with the exception of PayPal (neutral) and Zebra Technologies (no rating).

Morningstar analyst Ali Mogharabi put a wide moat on Facebook’s parent company and set the stock’s fair value at $384, more than double its recent trading price of $180.

“Meta is the world’s largest social network with over 3.6 billion monthly active users of its apps,” he wrote in the comments. “The growth in users and user engagement, and the valuable data they generate, makes Meta’s platform attractive to advertisers.”

Looking ahead, “the combination of these valuable assets and our expectation that advertisers will continue to shift online spending bodes well for the company’s revenue growth and cash flow,” Mogharabi said.

Morningstar’s take on PayPal

Morningstar analyst Brett Horn provides a narrow moat for the payments technology provider and puts the stock at a fair value of $135, 65% higher than its recent $82.

“For PayPal, the market has been swinging between hope and despair over the past few years,” he noted in his comments. “In the early stages of the pandemic, the stock roughly tripled. But in the past year , the stock has fallen about 75% from its peak.”

As for the current outlook, “With market confidence in the stock at a low ebb, we see a potentially good long-term opportunity.”

The author of this story owns shares in Meta Platforms and PayPal.

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