The rising adoption of advanced technologies and the global need for hardware acceleration are driving the tech market growth. However, macroeconomic uncertainties persist. So, I think tech stocks Apple Inc. (AAPL), Garmin Ltd. (GRMN), and NetApp, Inc. (NTAP) could be wise additions to your watchlists. These stocks also exhibit robust profit margins.
Rapidly increasing digital transformation across industries, adoption of new technologies such as artificial intelligence, IoT, and blockchain, and a growing emphasis on leveraging the core competencies by outsourcing non-core operations are the major driving factors of the tech service market.
The global information technology market is expected to grow to $119.95 trillion in 2027 at a CAGR of 7.9%.
Moreover, the global need for hardware acceleration is expected to grow at a 51% CAGR until 2033. The increasing usage of numerous data accelerators by a wide range of enterprises is expected to significantly contribute to market growth.
However, economic instability could pose significant challenges for the year. Moreover, the industry is witnessing staff shortages, while cybersecurity remains one of the biggest challenges for IT.
Let’s discuss the stocks mentioned above in detail:
Apple Inc. (AAPL)
Tech giant AAPL designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories and sells various related services. Its product offerings include iPhone, Mac, AirPods Max, iPad, Apple TV, Apple Watch, HomePod, and accessories.
On June 21, 2023, AAPL launched the visionOS software development kit to enable its developer community to bring more smoothness to its app user experience. This new feature would allow users to interact with digital content in their physical space using natural and intuitive inputs.
This innovation should enable users to utilize the kit’s powerful and unique capabilities to improve their productivity, design, and gaming experience.
On June 5, the company unveiled Apple Vision Pro, a revolutionary spatial computer that actively integrates digital content with the physical world, propelling innovation to unprecedented levels.
Experts assert that the device has the potential to surpass other virtual reality headsets in terms of market penetration, despite its significantly high price tag. This can be attributed to AAPL’s exceptional design, unwavering brand loyalty, and cutting-edge technology.
AAPL’s trailing-12-month CAPEX/Sales of 3.15% is 30.1% higher than the industry average of 2.42%. Its trailing-12-month net income margin of 24.68% is significantly higher than the industry average of 1.99%.
AAPL pays an annual dividend of $0.96, which translates to a dividend yield of 0.53%. Its four-year average yield is 0.72%. The company’s dividend payouts have grown at CAGRs of 5.7% and 6.7% over the past three and five years, respectively.
In the fiscal third quarter (ended July 1, 2023), AAPL’s total net sales declined 1.4% year-over-year to $81.80 billion. However, its gross margin increased 1.5% year-over-year to $36.41 billion. During the same quarter, the company’s net income amounted to $19.88 billion, while its EPS came in at $1.26.
Street expects AAPL’s revenue to decline marginally year-over-year in the fiscal fourth quarter (ending September 2023) to $89.29 billion. Whereas its EPS for the current quarter is expected to rise 7.6% year-over-year to $1.39. Moreover, it surpassed the EPS estimates in three of the trailing four quarters, which is impressive.
AAPL’s shares have gained 36.6% year-to-date but declined 6.9% over the past month to close the last trading session at $177.45.
AAPL’s POWR Ratings reflect this mixed outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a C for Growth, Momentum, Stability, and Sentiment. Among the 42 stocks in the Technology – Hardware industry, it is ranked #21.
Click here to see AAPL’s additional POWR Ratings (Value).
Garmin Ltd. (GRMN)
Headquartered in Schaffhausen, Switzerland, GRMN designs, develops, manufactures, markets, and distributes a range of wireless devices in the Americas, the Asia Pacific, Australian Continent, Europe, the Middle East, and Africa. Its Fitness segment offers running and multi-sport watches; cycling products; activity tracking and smartwatch devices; fitness and cycling accessories.
On August 7, 2023, GRMN announced it had entered into a definitive agreement to acquire JL Audio, a privately-held U.S. company that designs and manufactures audio solutions for marine, aftermarket automotive, powersports, home and RV customers.
GRMN’s trailing-12-month CAPEX/Sales of 4.25% is 32.4% higher than the industry average of 3.21%. Its trailing-12-month gross profit margin of 57.53% is 62.5% higher than the industry average of 35.41%.
In the second quarter (ended July 1, 2023), GRMN’s net sales increased 6.4% year-over-year to $1.32 billion, whereas its operating income declined 2.9% year-over-year to $284.36 billion. During the same quarter, the company’s net income amounted to $287.94 billion, while its net income per share came in at $1.50.
Analysts expect GRMN’s revenue to increase 5.8% year-over-year in the fiscal third quarter (ending September 2023) to $1.21 billion. Its EPS for the same quarter is expected to rise 3.3% year-over-year to $1.28. Moreover, it surpassed the EPS estimates in each of the trailing four quarters.
The stock has plunged 3.5% over the past month but gained 11.6% year-to-date to close the last trading session at $102.98.
The stock has an overall C rating, equating to a Neutral in our proprietary rating system.
GRMN also has a B grade for Quality and a C for Value, Stability, Momentum, Sentiment, and Growth. It is ranked #18 in the same industry.
Get additional GRMN POWR Ratings information here.
NetApp, Inc. (NTAP)
NTAP provides cloud-led and data-centric services to manage and share data on-premises, and private and public clouds worldwide. It operates in two segments, Hybrid Cloud; and Public Could.
On July 11, 2023, NTAP announced the renewal of its strategic alliance and co-engineering partnership with DreamWorks Animation.
NTAP will remain DreamWorks’ preferred cloud data services provider, and with the support of NetApp solutions, both on-premises and in the cloud, the studio will continue to evolve its hybrid cloud environment to ensure enhanced productivity, flexibility, and agility.
On June 22, 2023, NTAP introduced Spot Ocean CD, a continuous delivery solution for Kubernetes. Ocean CD complements and extends Spot Ocean, optimizing delivery of cloud applications by automating deployment strategies across clusters and workloads.
NTAP’s trailing-12-month gross profit margin of 66.16% is 38.1% higher than the 47.89% industry average. Its trailing-12-month asset turnover ratio of 0.64x is 4.5% higher than the 0.61x industry average.
NTAP’s net revenues declined by 11.9% to $1.58 billion in the fiscal fourth quarter that ended April 28, 2023. However, its non-GAAP net income increased 3.1% year-over-year to $ million and non-GAAP net income per share increased 8.5% year-over-year to $1.54.
NTAP’s revenue is expected to decline 11.3% year-over-year to $1.41 billion for the fiscal first quarter ending July 2023. Its EPS is expected to be $1.07 for the same quarter. However, it has surpassed EPS estimates in each of the trailing four quarters.
NTAP has gained 27% year-to-date but plunged 2% over the past month to close its last trading session at $76.29.
It’s no surprise that NTAP has an overall rating of C, which translates to a Neutral in our POWR Ratings system.
NTAP has an A grade for Quality and a C in Value, Momentum, and Stability. It is ranked #16 in the same industry.
For additional NTAP’s Sentiment and Growth ratings, click here.
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AAPL shares were trading at $177.60 per share on Wednesday afternoon, up $0.15 (+0.08%). Year-to-date, AAPL has gained 37.27%, versus a 16.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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