The coronavirus has already ended the 11-year bull market and its continued spread around the U.S. and the rest of the world has temporarily put a halt to much economic activity, including the travel and hospitality industries. The Dow, the S&P 500, and the Nasdaq have all fallen over 30% from their mid-February highs and selling and volatility look poised to remain amid increasing uncertainty.
Governments and people have taken measures to “flatten the curve,” which includes many Americans staying confined to their homes. Meanwhile, the Fed on Sunday cut its benchmark rate to near zero and it plans to ramp up bond buying as it tries to boost liquidity.
With this in mind, now likely isn’t time for investors to buy growth-style stocks on the dip. Instead, we found three stocks from the broader tech industry that might be solid longer-term investments, even if we haven’t hit a bottom.
On top of that, their higher dividend yields should help provide much-needed income during the coronavirus downturn.
Seagate Technology PLC (STX – Free Report)
Seagate is a data storage firm, with offerings that range from hard disk drives to solid state drives and more. STX sells storage solutions for both businesses and consumers and STX executives expect to benefit from the “ongoing demand for mass capacity storage.” In February, it topped our Q2 fiscal 2020 earnings estimate and longer-term bottom-line revisions have remained positive amid the economic setbacks, which helps STX earn a Zacks Rank #2 (Buy) right now. Nonetheless, Seagate stock has fallen roughly 30% in 2020.
STX was trading at around $42.50 a share through early afternoon Friday, over $20 off its 52-week highs of around $64 a share that it hit in January. Along with its lower price, STX has consistently traded at a discount against its industry over the last five years. Seagate is currently trading at 1.1X forward 12-month sales, compared to its industry’s 2.2X average, which also comes in well below its own 52-week high of 1.6X. Plus, STX is trading at 7.7X forward 12-month earnings, well below its one-year median of 10.4X and its industry’s 14.3X average.
Seagate currently sports an “A” grade for Value in our Style Scores system and is part of a Computer- Storage Devices industry that rests in the top 7% of our more than 250 Zacks industries. And in keeping with today’s theme, STX’s dividend is currently yielding roughly 6.1% to blow away the S&P 500’s 2.36% average. Plus, its next quarterly dividend of $0.65 a share will be payable on April 8, to shareholders of record as of March 25.
IBM (IBM – Free Report)
IBM further demonstrated its commitment to its cloud computing transition when the historic tech giant in late January announced that Ginni Rometty would step down as CEO. IBM’s new CEO, Arvind Krishna, has already played a key role in turning the company’s focus to artificial intelligence, the cloud and quantum computing. IBM also topped our quarterly earnings estimates and posted surprise Q4 revenue growth, after five straight quarters of declining sales—driven by cloud revenue, which surged 21% to account for over 30% of total sales.
Shares of IBM have fallen as part of the broader market selloff and are now down 30% in 2020. The stock currently sits at around $97 a share, after trading as high as $157 a share in early February. Investors should note that IBM stock hasn’t traded at these prices in over a decade. As one might hope, this has also put IBM’s valuation at 10-year lows, trading at 7.4X forward 12-months Zacks earnings estimate. This comes in well below its highly-ranked industry’s 14.3X average and its own one-year median of 10.2X, which helps the stock hold a “B” grade for Value.
Looking ahead, IBM’s revenue and earnings are projected to climb in fiscal 2020 and 2021, with bigger growth expected on the bottom line. Meanwhile, IBM’s longer-term earnings revisions activity helps it earn a Zacks Rank #2 (Buy) right now. Lastly, IBM’s 6.68% dividend yield easily tops Qualcomm’s (QCOM – Free Report) 3.85% and Oracle’s (ORCL – Free Report) 2.08%, and the firm has a history of raising its payout.
Verizon (VZ – Free Report)
Verizon is a communication powerhouse that competes alongside rival AT&T (T – Free Report) for dominance in the wireless market. VZ, like its main rival, has focused on various cost-cutting measures even as it ramps up its 5G push, which requires a large amount of capital spending. Looking back, the company closed the year on a high note, after it recorded its most Q4 wireless adds in six years.
Verizon’s earnings estimate revision activity has been mixed amid the market uncertainty, which helps it hold a Zacks Rank #3 (Hold). VZ does rock a “B” grade for Growth in our Style Scores system and its earnings and sales are both projected to expand in fiscal 2020 and 2021. Verizon is also part of an industry that rests in the top 17% of our more than 250 Zacks industries.
VZ is currently trading at a discount compared to its industry at 10.7X forward earnings, against the Wireless National’s 11X average. Verizon stock has fallen 11% in the last month and 16% in 2020 to hover just above its 52-week lows. Despite not falling as much as the broader market, which might have made its dividend appear even more attractive, VZ’s yield rests at 4.78%. This marks an impressive premium against the 10-year U.S. Treasury’s 0.95%, the S&P 500’s average yield of 2.36%, and Apple’s (AAPL – Free Report) 1.26%.
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Author: Benjamin Rains