At this time of the year, the forward-looking stock market is more and more using outlooks for 2018 to set stock prices. Before you sell a stock that looks over priced, check its earnings estimate for the year ahead. The stock may prove to be well priced after all. Here are 3 technology stocks that will grow in 2018.
At this time of the year, the forward-looking stock market increasingly shifts its focus to 2018. Expectations about next year’s results now play a larger role in setting stock prices. A short-term focus can lead you to make costly mistakes. Consider, for instance, some tech stocks we regularly review in our weekly feature The Back Page.
Avigilon Corp. (TSX—AVO)is a Vancouver-based provider of business intelligence and security solutions. It designs, manufactures and markets video surveillance and access control software and equipment.
Its stock trades around 21.9 times the 75 cents a share it’s expected to earn in 2017. This price-to-earnings, or P/E, ratio looks excessive. If this provider of surveillance services falls short of expectations, its P/E ratio will likely contract and inflict losses on investors who buy it at higher multiples.
The high P/E ratio could scare some investors into selling Avigilon. In 2018, however, it’s expected to earn C$1.40 a share. Based on this estimate, the stock in fact trades at an attractive P/E ratio of 11.7 times. That’s likely why its share price has risen by 4.8 per cent since we published our April 21 issue.
The consensus recommendation of two analysts is that Avigilon is a ‘buy’. We agree. It remains a buy for further long-term share price gains. But only if you need no dividends. And only if you can accept buying a stock that we rate ‘Higher Risk’.
Exfo should earn C$0.30 a share in fiscal 2018
Exfo Inc. (TSX—EXF; NASDAQ—EXFO) (formerly EXFO Electro-Optical Engineering) “develops smarter network test data and analytics solutions for the world’s leading communications service providers, network equipment manufacturers and web-scale companies”.
Québec city-based Exfo is thought to have earned C$0.20 a share in the year to August 31. This would give it a high P/E ratio of 24.5 times. In fiscal 2018, which began on September 1, Exfo is expected to earn C$0.30 a share. Using this estimate, the shares of this communications equipment manufacturing stock trade around a more reasonable P/E ratio of 16.3 times.
The consensus recommendation of two analysts is that Exfo is a ‘buy’. We agree. Especially as the shares have plunged by 21.7 per cent since we published our April 21 issue. While this creates negative price momentum, it also makes the shares far cheaper. But only buy Exfo if you need no dividends and you can accept buying a stock we rate ‘Higher Risk’.
Software products and services giant still growing
US Key stock Microsoft Corp. (NASDAQ—MSFT) is a global technology stock. It develops, manufactures, licenses, supports and sells computer software, consumer electronics, personal computers, and services. Its stock is up by 10.9 per cent since we published our April 21 issue. It’s up the most of the 10 high-tech stocks on The Back Page. This gives the stock upwards price momentum. Then again, the higher share price makes this blue chip stock even more costly.
In the year to June 30, 2018, Microsoft is expected to earn $3.20 a share. Based on this estimate, the shares trade at a P/E ratio of 22.8 times. Next year, it’s expected to earn $3.59 a share.
The consensus recommendation of 17 analysts is ‘buy’. We agree. Buy Microsoft for further long-term share price gains plus decent and growing dividends.
This is an edited version of an article that was originally published for subscribers in the September 8, 2017, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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