14 best tech stocks that aren't on your radar

These are 14 of the best tech stocks (and tech-adjacent companies) that don't see as much sunlight as some of Wall Street's beloved story stocks.

  • By Lisa Springer,
  • Kiplinger
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print

Tech stocks have spent the past few years really separating themselves from the market pack. As technology has become more ingrained into every aspect of life – work, play and everything in between – the companies developing and providing those technologies have delivered explosive growth.

The Technology Select Sector SPDR Fund (XLK) has delivered a 139% total return (price performance plus dividends) over the past five years, well more than double the S&P 500's 57% return. The five largest companies trading on U.S. markets are either tech stocks or, as is the case with several of the companies we'll highlight below, technology-intensive companies in other sectors. Think Amazon.com (AMZN), a consumer discretionary company, or Facebook (FB), which is technically a communications stock.

Wall Street remains aggressively bullish on tech and tech-like stocks. According to data from TipRanks, which tracks the industry's leading investment analysts, the pros are still very optimistic about the sector. Of the 573 tech stocks TipRanks includes in the sector, 129 (23%) had "Strong Buy" consensus ratings, with another 303 (51%) earning "Moderate Buy" ratings.

Some of the analyst community's top tech stocks are well-worn names such as Microsoft (MSFT) and Apple (AAPL). But many more tend to get second billing despite having equally exciting outlooks. Here, we'll look at 14 of the best tech stocks and other technology-adjacent companies that you might not hear as much about.

Data is as of May 28. Consensus rating is based on calls by TipRanks-tracked analysts over the past three months.

Fiserv

Market value: $71.1 billion

Consensus rating: Strong buy

As e-commerce has become increasingly prevalent in merchant transactions, Fiserv (FISV) has become a global giant in online payment processing, which is routed through its cloud-based, point-of-sale processing platform Clover. Fiserv's clients include leading banks, credit unions and merchants. The company significantly expanded its global footprint last year by purchasing First Data, a worldwide leader in payment processing.

Canaccord Genuity analysts recently pulled back their price target on FISV a bit, to $135 per share, but that still implies 27% upside from current prices. They also maintained a Buy rating, citing "accelerating cost synergies to deliver (double-digit) earnings growth this year."

So far, so good. Fiserv reported adjusted earnings per share (EPS) growth of 16% during the March quarter. The company also raised its outlook for post-acquisition revenue and cost synergies.

Also during the quarter, Fiserv introduced a PIN-based mobile application that makes smartphones and tablets point-of-sale terminals and expanded its merchant services via the acquisition of MerchantPro Express.

Fiserv is one of the best-covered tech stocks on this list, with 20 TipRanks-tracked analysts sounding off over the past quarter. Eighteen of them call FISV stock a Buy, versus two Holds and no Sells. And their current price target implies 15% upside over the next year or so.

Global Payments

Market value: $53.2 billion

Consensus rating: Strong buy

Another payment processor that is holding up well despite the coronavirus is Global Payments (GPN). This company provides payment technology and software solutions across its Merchant, Card Issuer and Consumer segments in 100 countries worldwide.

"Global Payments needed to deliver a satisfying April update (stabilization with some signs of potential improvement) and identify a degree of cost savings to support near-term margins – the former met expectations and the latter meaningfully exceeded," write Credit Suisse analysts, who maintain GPN's shares at Outperform (equivalent of Buy).

Global Payment's adjusted EPS rose 18% in the March quarter, and the company added Truist (TFC), the nation's sixth largest commercial bank, as a payment processing customer. A further boost to earnings will come from $475 million of annual run-rate synergies targeted from its merger with Total Service Systems, as well as $400 million in incremental savings over the next 12 months.

Global Payments is among the few dividend-paying tech stocks on this list. Its dividend program has been around for years, but GPN put the pedal down in 2019 when it raised its quarterly payout from a penny per share to 19.5 cents. A thin payout ratio of just 12% of profits provides ample runway for even more dividend growth.

L3Harris Technologies

Market value: $42.5 billion

Consensus rating: Strong buy

L3Harris Technologies (LHX) became America's sixth largest defense contractor last year via Harris Corporation's all-stock merger with L3 Technologies. While it's typically grouped in the industrials sector, technology is at the very core of its operations. L3 Harris provides battlefield communications systems, night-vision devices, sensors and satellite communications for the U.S. military. It also makes a computer processor used in the F-35 stealth fighter.

LHX, whose stock is at breakeven for the year versus a down market, delivered 21% adjusted profit growth during the March quarter, which beat analyst estimates by a wide margin. That came on strength in its aviation systems business. L3Harris slightly reduced its full-year 2020 revenue and EPS guidance but left its free cash flow guidance intact at $2.6 billion to $2.7 billion.

Longer-term, LHX looks for $500 million in post-acquisition synergies to drive margin expansion next year while it continues to invest 5% of revenues in R&D – a much higher reinvestment rate than most peers. L3Harris also is streamlining its business portfolio, looking to divest up to 10% of the company. In May, it closed the $1 billion sale of its airport security and automation business.

Recent contract wins include $500 million from the U.S. Space Force, as well as an artificial-intelligence contract with the Air Force for an undisclosed amount. The company also achieved a major milestone during Q1 when the Air Force approved its design for a new satellite navigation system.

Bank of America analyst Ron Epstein initiated coverage of LHX with a "Buy" rating in April. He likes the company's high R&D investment, which he says is "driving the company to innovate and deliver superior solutions to the customer." Overall, an analyst consensus price target of $237.50 implies 21% upside from current levels.

Dynatrace

Market value: $10.6 billion

Consensus rating: Strong buy

Dynatrace (DT) offers a market-leading software intelligence platform designed specifically for the cloud. Its platform utilizes AI and advanced automation to monitor the performance of applications, underlying multi-cloud infrastructure, and the experience of the customers' users. Dynatrace's products are used by approximately 2,600 customers in 80 countries across banking, insurance, retail, manufacturing, travel and software sectors.

Work-from-home requirements sparked by COVID-19 are putting increased demands on applications and the cloud. That's heightening the role of software intelligence providers like Dynatrace. The company recently recorded its eighth consecutive quarter of 120%-plus growth for its Dynatrace Net platform. Annualized recurring subscription revenues rose 42% in the March quarter, and adjusted EPS jumped nearly fourfold. Better still, 89% of total revenues are subscription-based, which are more dependable.

Dynatrace still should see outstanding growth despite the coronavirus, too. The company expects revenues for the fiscal year ending in March 2021 to grow 17% to 20% year-over-year, with adjusted EPS up 30% at the midpoint of guidance.

DT shares have 10 Buy calls versus just three Holds and no Sells over the past quarter, but they've exceeded the average analyst price target of $36.08, so from here, it's important to watch to see whether analysts hike their targets going forward.

For instance, D.A. Davidson analyst Andrew Nowinski (Buy) actually calls FY21 guidance "modestly disappointing" but writes that Dynatrace "remains well-positioned to capitalize on the move to the cloud." He upgraded his earnings expectations for the company, and raised his price target on DT shares from $34 to $40.

Nuance Communications

Market value: $6.4 billion

Consensus rating: Moderate buy

"(CEO Mark Benjamin and his team have) engineered one of the more impressive strategic/fundamental turnarounds we have seen in decades of covering the technology sector," Wedbush's Dan Ives writes about Nuance Communications (NUAN).

Nuance provides conversational AI tools used in automated customer call systems, voicemail transcription and other voice solutions deployed by clients in the healthcare, financial services, telecommunications and retail industries.

The company has exceeded consensus analyst estimates four quarters in a row, including a 23% earnings beat for its March quarter. Organic sales growth of 11% was powered by its healthcare and enterprise businesses; the enterprise segment achieved its highest growth rate in 10 years.

While Nuance Communications expects COVID-19 to affect its healthcare business, the company is guiding for 2020 adjusted EPS of 76 to 86 cents per share, down 5 cents at the midpoint from previous guidance. Its April launch of Dragon Ambient, a tool for powering virtual exams that taps into the COVID-19 related telehealth boom, should bolster healthcare segment results.

While the consensus price target of $22.60 implies flat price potential over the coming year, investors should key in on the fact that recent PTs are rising along with NUAN's share price. The three most recent targets – all on Buy ratings – average out to $23.66, and that includes a $27 call by Wedbush's Ives.

Science Applications International

Market value: $4.9 billion

Consensus rating: Strong buy

Science Applications International (SAIC) provides tech support and enterprise IT services to all branches of the U.S. military, NASA, DOJ, the State Department and all the national intelligence agencies. SAIC's services include technology and equipment platform integration, maintenance for ground and maritime systems, and logistics, training and simulation support.

SAIC has been delivering roughly 10% annual earnings gains over the past five years, including a 9% profit improvement for its fiscal 2020, which ended in January. In February, SAIC agreed to acquire Unisys Federal, a leading provider of IT services to the federal government in an all-cash deal valued at $1.2 billion. The deal expands SAIC's capabilities in government IT areas, builds its customer base and is accretive to per-share earnings.

Recent contract awards include $653 million from the Federal Aviation Administration (FAA), $655 million from the U.S. Air Force and $950 million from the Defense Department. These are in addition to $1.1 billion of national security contracts awarded during the January quarter. And SAIC enters fiscal 2021 with contract backlog exceeding $15.3 billion.

The company has plenty of liquidity to offset temporary coronavirus-related funding delays. SAIC generated $437 million of free cash flow in fiscal 2020, up 180% year-over-year, and ended the year with $155 million of cash and $400 million available on its credit line.

SAIC is among the dividend-paying tech stocks on this list. It doles out 37 cents per share quarterly, translating to a modest yield of 1.7%. Its conservative payout ratio of 24% supports further increases in the future.

Jefferies analyst Sheila Kahyaoglu is one of eight analysts writing a Buy opinion on SAIC over the past quarter, versus just one Hold. She recently raised her price target on shares from $90 to $95.

Curtiss-Wright

Market value: $4.3 billion

Consensus rating: Strong buy

Curtiss-Wright (CW) is, like L3Harris, another industrial that sometimes is lumped in with the technology sector.

CW designs and manufactures highly engineered components for the defense, industrial, aerospace and power generation markets. Its components are found in most fighter jets, drones and nuclear submarines. It also provides pumps, motors, generators and turbines for U.S. Navy ships, as well as reactor coolant pumps and control rod mechanisms for nuclear power plants. The U.S. military is Curtiss-Wright's largest customer, accounting for more than 40% of sales.

The company's adjusted EPS rose 3% in the March quarter as strength in its defense segment more than offset COVID-related industrial segment weakness. The company's backlog remained high at $2.1 billion, and it began implementing cost controls that should benefit profits and free cash flow.

Curtiss-Wright also pays a modest 17-cent quarterly dividend that yields a mere 0.7% percent. But CW has improved that payout by more than 30% over the past four years, and a low 11% payout ratio leaves cushion for future hikes. Meanwhile, analysts have a $125.75 price target that implies this tech stock will gain 23% over the next 52 weeks.

"We continue to rate Curtiss-Wright Outperform for three reasons," write William Blair analysts. "1) compelling valuation following the stock's 37% correction from a recent high of almost $150 per share in early February 2020; 2) the likelihood that its next China Direct order will not be disrupted by ongoing trade tariffs with China or the impact of COVID-19; and 3) strong prospects that the company will likely disproportionately benefit from continued strong growth for its Defense business, which should account for almost 50% of the company's sales in 2020."

Viavi Solutions

Market value: $2.6 billion

Consensus rating: Strong buy

Viavi Solutions (VIAV) is a global leader in network test, monitoring and assurance solutions for the major telecom carriers. The company also provides 3D sensing products for facial recognition security authentication on mobile devices.

As a leader in network monitoring, Viavi Solutions benefits from 5G buildouts, which are increasing the scale and complexity of carrier networks, and the rollout of new 3D sensing technologies for consumer, automotive and industrial markets.

Viavi grew adjusted EPS by 8% during its March quarter as effective cost controls more than offset a slight sales decline. According to Viavi Solutions, the counter-cyclical nature of its businesses and its liquid balance sheet should enable the company to manage through near-term economic uncertainties; catalysts from 5G, Wireless, Fiber and 3D sensing will drive long-term profit growth.

A few other things to like about Viavi? It manages expectations well, having beaten analyst estimates for four consecutive quarters. The company also has delivered 30% yearly EBITDA growth over the past three years. And the fact that it has nearly as much cash ($534 million) as long-term debt ($596 million) means it should be able to ride out coronavirus-related funding delays until the major wireless carriers resume 5G builds.

Six of the seven analysts that have written about VIAV shares over the past quarter have doled out Buy ratings, versus just one Hold. It also is among the best tech stocks to buy based on upside potential, with the pros targeting 31% gains over the next 12 months or so.

Mimecast

Market value: $2.6 billion

Consensus rating: Strong buy

Mimecast (MIME), a cybersecurity firm headquartered in the U.K., is one of the few internationally based tech stocks on this list. That said, it derives 52% of its revenues from customers in the U.S., 29% from the U.K., 11% from Africa, and the rest from around the globe. All told, MIME serves 38,100 organizations and 13 million users globally.

Mimecast is focused on email security; it specializes in email gateway security, targeted threat protection and data loss prevention. Approximately 98% of the company's revenues are subscription-based.

Mimecast added 3,700 new customers during fiscal 2020 ended in March, grew revenues 25% and doubled its adjusted EPS. High rates of customer growth, customer retention and upselling new services to existing customers were key growth drivers. The company is targeting an opportunity of 200 million Microsoft 365 commercial users for future growth and estimates its total addressable market exceeds 1 billion business email users.

MIME is expecting a productive fiscal 2021 that should see revenues grow 15% to 17% and adjusted EBITDA to grow by 22%.

SunTrust analyst Terry Tillman (Buy) lowered his price target on MIME from $63 per share to $56 in May, which still implies 38% upside from current levels. While the company's revenue guidance was slightly lower than previous estimates, Tillman sees benefits from Mimecast's business positioning, as well as its "strong financial model that includes sustained strong growth and operating leverage."

As a group, analysts are looking for 30% upside potential, based on a $52.67 consensus price target for this tech stock.

Kratos Defense & Security Solutions

Market value: $1.9 billion

Consensus rating: Strong buy

Kratos Defense & Security Solutions (KTOS) is another defense-tech hybrid, this one specializing in unmanned drones, satellite communications, cybersecurity and warfare, microwave electronics and missile defense. KTOS participates in several major military programs involving unmanned aerial drones.

March-quarter adjusted earnings were down slightly year-over-year thanks to higher R&D costs. But revenues improved; unmanned systems segment sales were especially strong, jumping 20% year-over-year. Contract backlog remained strong during the March quarter at $646.8 million, up 8% from year-end 2019, and the bid and proposal pipeline held steady at $7.7 billion. And those adjusted profits did beat analyst estimates.

Northrop Grumman (NOC) in February chose Kratos to be its partner for the U.S. Air Force Ground-Based Strategic Deterrent (GBSD) program. GBSD is a $63 billion, 20-year program for the development of the next generation of missiles to replace the outdated Minuteman III intercontinental ballistic missiles. This weapons program is likely to become Kratos' major near-term organic growth driver.

KTOS shares are up marginally in 2020, but it hasn't been completely immune to coronavirus woes. The company has trimmed its 2020 revenue guidance by $20 million to $740 million thanks to COVID-related funding delays. But it

The company trimmed its 2020 revenue guidance by $20 million to $740 million at the midpoint due to COVID-19-related funding delays, but held adjusted EBITDA guidance steady at $75 million at the midpoint, roughly the same as last year.

Benchmark analyst Josh Sullivan initiated coverage of KTOS with a Buy rating in March, noting the market leading position for its Valkyrie combat drones and rising demand for military drones as older-generation fighter jets are retired. That's one of five Buy ratings over the past three months – a unanimous consensus among analysts tracked by TipRanks. They see upside potential of 19% based on a $21.50 consensus price target.

Cubic Corporation

Market value: $1.3 billion

Consensus rating: Strong buy

Cubic Corporation (CUB) is an industrial-classified company that's nonetheless neck-deep in technology.

Cubic provides systems and services for C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) worldwide. Its transportation segment specializes in systems for automated fare payment and traffic management and enforcement. Its defense segment focuses on security for wide-band communication systems serving aircraft and drones and providing game-based military training simulations.

Nearly 65% of Cubic's sales are derived from U.S. federal, state and local government. The company has built leadership positions in mobile solutions for mass transit ridership (61% market share) and in air combat maneuvering instrumentation and training.

CUB is one of the few tech stocks on this list that actually had a difficult March quarter. It recorded lower sales and an adjusted EPS loss because of the timing of orders and difficult year-over-year comparisons. Still, backlog remained impressive at $3.6 billion, which represents two years of future sales.

The company also improved its financial condition last quarter by increasing its borrowing capacity 30%, reducing interest costs and extending debt maturities.

Canaccord Genuity analysts acknowledge that timing risk hit the company in its March quarter, but they still expect a strong Q4 and maintain a Buy rating on CUB shares. William Blair analysts (Outperform), meanwhile, wrote earlier in May that "shares of Cubic trade at approximately 12 times earnings compared with the peer group median of 20 times. Over the next 12 months, we expect this valuation gap to narrow."

Analysts have a price target of $53.29 on CUB shares, implying the stock could rise 28% over the next 12 months or so.

Avaya Holdings

Market value: $1.2 billion

Consensus rating: Strong buy

Communications software supplier Avaya Holdings (AVYA) is benefiting from increased COVID-19-related demand for video collaboration software and contact centers upgrading their work-from-anywhere capabilities. The company serves more than 100,000 customers, 90% of which are Fortune 100 companies, and is a leader in cloud communications platforms for large businesses.

Earlier this year, Avaya partnered with RingCentral (RNG), a leader in contact center communications, to offer Avaya Cloud Office, a new service that combines team messaging, video conferencing, file sharing and collaboration in one solution.

Avaya secured $2.3 billion of new contracts during the March quarter and experienced a 200% improvement in subscription revenues, with recurring rising 5 percentage points to 64% of total revenues. Avaya also generated strong adjusted EBITDA of $149 million but recorded a net loss due to non-cash impairment charges.

Avaya does have quite the debt load: Nearly $3 billion in IOUs is well more than double the company's market capitalization. But it has a decent $553 million in cash and has generated $229 million in levered free cash flow over the trailing 12 months.

AVYA is another one of these tech stocks that merits close watching. That's because the current price target of $14.80 implies no upside – but that's thanks to a 50% run over the past month that has quickly sent it over most analyst targets.

The Street still has four Buys against one Hold, so investors should continue to monitor Avaya to see if they raise their estimates … or tone down their optimism on valuation concerns. A good example: JPMorgan's Samik Chatterjee in April started AVYA shares at Overweight thanks in part because of the company's "transformation to cloud-based solutions," but he also cited its "inexpensive valuation." An update on that opinion should be telling.

Cerence

Market value: $1.0 billion

Consensus rating: Strong buy

Cerence (CRNC) is a worldwide leader in virtual assistant software used in today's cars and trucks. The company went public last September when it was spun off from former parent Nuance Communications.

Cerence's customers include all of the top vehicle manufacturers: General Motors (GM), Toyota (TM), Ford (F) and more. The company's on-board systems have already been installed in more than 300 million vehicles worldwide. And its virtual assistant platform is capable of interacting with customers in 70 different languages and is protected by 1,250 issued patents, providing a wide moat from competitor threats.

As a preferred technology partner to major car brands, Cerence is on the leading edge of high-growth emerging trends like autonomous driving, smart cities, shared rides and e-vehicles.

Cerence had a boffo March quarter. Adjusted EPS rose by 39%, and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) jumped by 55%. Order bookings for the first six months of its fiscal year were a record $535 million and have already exceeded fiscal 2019 full-year bookings. During the quarter, Cerence signed its two largest contracts ever: one for its Edge (in-car AI) technology and another for its cloud-connected services.

The company's robust growth has not come at the expense of its balance sheet. Cerence has $96 million and has generated $88 million in free cash flow over the trailing 12 months, versus long-term debt of $238 million. That's an easily manageable situation that gives Cerence plenty of room to fund business development and R&D initiatives.

Moreover, analysts see this tech stock rising 18% over the next year, to $32.67 per share.

NeoPhotonics

Market value: $411.0 million

Consensus rating: Strong buy

NeoPhotonics (NPTN) supplies optoelectronic circuits that transmit high-speed digital optical signals for telecom networks. The major carriers already are experiencing bandwidth overloads and demand for more infrastructure to support the cloud, and NeoPhotonics believes demand for its high-performance optics will increase dramatically as data speeds accelerate and the number of hyper-scale data centers increases exponentially.

NPTN has enjoyed strong demand for its product already this year, driven by COVID-19-related growth in global Internet traffic as more people work remotely.

NeoPhotonics reported a 23% jump in revenues during the March quarter, as well as 17 cents of adjusted EPS – up from 10 cents in the prior quarter, and a 19-cent loss in the year-ago period. NPTN has also beaten analysts' sales and EPS estimates in each of the past four quarters.

Needham analyst Alex Henderson thinks NeoPhotonics has plenty of room to grow and raised his price target in May while reiterating his "Buy" rating. JPMorgan analyst Samik Chatterjee initiated coverage of NPTN in April with an "Overweight" rating. He envisions accelerated adoption of the company's optical technologies because of their ability to deliver higher port speeds for telecom and cloud applications.

And NPTN's upside potential of 43%, based on a $12.07 consensus price target, makes it tops among this list of Wall Street's best tech stocks to buy.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print

For more news you can use to help guide your financial life, visit our Insights page.


© 2020 The Kiplinger Washington Editors, Inc.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.